What Is The Value Of The Gas Assets That Cyprus Pledged To It's Bank Depositors?

Reggie Middleton's picture

 

picsay-1363698572Following yesterday'shighly analytical rant on Cypriotic bank nonsense, I present an interesting analysis on the value of the gas assets pledged to those who's bank accounts may be clipped by the Cypriotic government/ECB. For those who don't know, the proposal was to compensate those who were subject to the tax/levy on their bank accounts with bonds linked to the output of Cyprus natural gas mines. Of course, the first question anyone should ask is "Why not simply pledge the gas assets directly to the ECB vs stealing from the bank depositors?" I think we can all ascertain the answer to that question. I was tweeted an analyst by wherein he delved into the fundamental value of the exchange. I would like to reproduce a portion of it here. The balance can be found on his site.

Cyprus Bank Deposit Levy and Natural Gas Bonds

Cyprus' president has pledged to cover the value of its imminent savings deposit levy with an equivalent value of natural gas bonds. It's hard to say whether Cypriot savers should take this promise seriously without some analysis of its viability.
Let's use the European bailout sum for Cyprus of US$13B as a proxy for the amount of savings about to be confiscated from Cyprus' resident depositors.  I need a proxy because I have no idea how much the government of Cyprus will actually collect from this levy.  The natural gas revenue needed to back the bonds that would make savers whole would likely come from the Aphrodite field.  Title to this field is unclear; Turkey has made a competing claim for the sovereign right to control drilling.
This is the likely answer to the quetion above. If the ownership and rights to the mine are in question, then it is essentially an encumbered asset. As such, how is it Cyprus's to pledge to anybody? May I add that Turkey actually has a functional military, and Cyprus has???
There is currently no pipeline from Cyprus to either Turkey or Crete which could deliver the gas to market; that would cost US$1B to build and Cyprus has no money.  Building a $10B LNG terminal is ten times as unlikely, because Cyprus is still broke.  The energy supermajor that ends up building it will get the lion's share of the revenue from the gas field as compensation for its costs and will have to deal with the likelihood of being shut out of other projects in Turkey. 
Again, exactly how will this gas asset be monetized? I have not verified the facts and calculations behind this article, but if they ring true, then it appears that Cyprus is pledging the option of future development to a gas asset that it MIGHT own in exchange for actual cash in terms of what is being offered to bank depositors. So, the most valuable asset possible (actual cash denominated in a major currency) is being exchanged for an option on an undeveloped asset whose ownership and right to pledge/transfer is undetermined. Does this sound like a good deal to you? And we haven't even started to glean the actual fundamental value yet?
The lack of drilling and delivery infrastructure means that no Aphrodite gas will go to Europe until 2018 at the earliest.  A lot can happen with the price of natural gas in five years.  The wide availability of shale gas in the U.S. will keep the price down in North America.  Europe's need for gas is met mainly by Russia, and Gazprom can adjust its rates at will to pressure Russia's neighbors. 
And such pressure is guaranteed if Russian citizens are to lose the 2 billion or so euros to the Cyprus bailout levy that is being bandied around.
There is more to Mr. Alfidi's analysis, and I urge you to visit his site to read it. In the meantime, keep this chart from yesterday's post on Cypriotic bank nonsense in mind...

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I'm currently preparing the release of a report that will make the Cyprus affair look like peanuts as this contagion reinfects the core and I produce so much evidence of apparent fraud as to make your nose bleed. Stay tuned, and follow me:

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piceridu's picture

The bailout will probably come from Russia and Cyprus might become a Russian parking lot (dock). Yes, The Great Game is on.

MrBoompi's picture

I guess they could just steal the depositors' money without offering them anything in return, so why not take the gas bond deal and hope some of it bears fruit?

Everyone can see TPTB will steal anything they need, now or in the future.

 

 

bigfire's picture

100% of Zero is still Zero.  Math is hard.

little buddy buys the dips's picture

the longer anyone waits to lynch a banker....

laomei's picture

You know, or they could just do the Gazprom deal directly, which would end the crisis entirely without having to steal from the public.  They can hammer out the details and ensure some degree of profit sharing based on royalties and cheap gas for Cypriots....  but that would just make too much sense.

Downtoolong's picture

Does this sound like a good deal to you?

Sounds like a typical Wall Street IPO to me.

This deal relies heavily on individuals not being able to count, read, write or spell...

Fuck, then it just might work on the Muppets in the U.S. Now I am scared.

Confundido's picture

A remake of the Crimean war in the cards? It would make more sense. Back in 1854, the banksters had not stolen 10% of the Tsars money!

shovelhead's picture

So we see why the Euro-Bankstas want cash.

They already have buckets of gaseous promises.

geno-econ's picture

Smells like a gas bubble or CYPRIOTIC FART spreadng across Euroland.  Hold on to your deposits at all costs

machineh's picture

 May I add that Turkey actually has a functional military, and Cyprus has???

Did you mean to say 'Cyprus has not'?

What Cyprus does have is British military bases, which the U.S. is pushing to convert into NATO bases.

Beware the Great Game ... energy is only a part of it.

SmittyinLA's picture

Cyprus is part of Greece, they're one of the reasons Greece spends so much on the military http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

Cyprus is too far to drive for the Turks or Syrians, being close doesn't count for shit, you gotta be able to occupy a territory before claiming it. 

JOYFUL's picture

...Cyprus is too far to drive for the Turks or Syrians...

This just in....

Man Invents "Boat" - Then Sails It on Water!

 

JOYFUL's picture

The Great Game is on. But the players on the chessboard have altered their appearance since Lewis Carroll's day...

and we look on, as through a glass darkly, as the endless cycles of history looping through the Mad Hatter's lense give way to the Minotaurs' Den...

and here, at last, it be no longer a game, of chance or mischance; but rather, in the starker vision of a Bruce Lee - A Game of Death. How many levels will you climb, before you tire, and find your match.

There is the smell of blood on the wind. ZH has become the spear and cape which you will use to find your way through the maze, and past the monster's maw. Use them wisely, for they are your last, best hope.

Kudos again Reggie.

ps. gold will roll through 1630 today. It's on.

ebear's picture

The Great Game is on. But the players on the chessboard have altered their appearance since Lewis Carroll's day...

 

THIS.  IS.  CYPRUS!!!

JOYFUL's picture

err, the Minotaur is a Mediterranean mythological monster mon pere...

R U A "Cretan"?

Alfred Lord Tennyson anyone?

falak pema's picture

Absolutely, that gas deposit is in contested and Nato defended territory and Russia is not the only player in town; Ottomans in revival are now strong players on Cyprus land as on the sea...

Buck Johnson's picture

Cyprus won't own those gas fields and if so the person who builds the LNG facility and pipeline will as reggie said get the lionshare of the revenue.