As Cyprus Collapses, It's A Race To The Mediterranean Gas Finish Line

Tyler Durden's picture

Submitted by Jen Alic of,

Cyprus is preparing for total financial collapse as the European Central Bank turns its back on the island after its parliament rejected a scheme to make Cypriot citizens pay a levy on savings deposits in return for a share in potential gas futures to fund a bailout.

On Wednesday, the Greek-Cypriot government voted against asking its citizens to bank on the future of gas exports by paying a 3-15% levy on bank deposits in return for a stake in potential gas sales. The scheme would have partly funded a $13 billion EU bailout.

It would have been a major gamble that had Cypriots asking how much gas the island actually has and whether it will prove commercially viable any time soon.

In the end, not even the parliament was willing to take the gamble, forcing Cypriots to look elsewhere for cash, hitting up Russia in desperate talks this week, but to no avail.

The bank deposit levy would not have gone down well in Russia, whose citizens use Cypriot banks to store their “offshore” cash. Some of the largest accounts belong to Russians and other foreigners, and the levy scheme would have targeted accounts with over 20,000 euros. So it made sense that Cyprus would then turn to Russia for help, but so far Moscow hasn’t put any concrete offers on the table.

Plan A (the levy scheme) has been rejected. Plan B (Russia) has been ineffective. Plan C has yet to reveal itself. And without a Plan C, the banks can’t reopen. The minute they open their doors there will be a withdrawal rush that will force their collapse.

In the meantime, cashing in on the island’s major gas potential is more urgent than ever—but these are still very early days.

In the end, it’s all about gas and the race to the finish line to develop massive Mediterranean discoveries. Cyprus has found itself right in the middle of this geopolitical game in which its gas potential is a tool in a showdown between Russia and the European Union.   

The EU favored the Cypriot bank deposit levy but it would have hit at the massive accounts of Russian oligarchs. Without the promise of Levant Basin gas, the EU wouldn’t have had the bravado for such a move because Russia holds too much power over Europe’s gas supply.

Cypriot Gas Potential

The Greek Cypriot government believes it is sitting on an amazing 60 trillion cubic feet of gas, but these are early days—these aren’t proven reserves and commercial viability could be years away. In the best-case scenario, production could feasibly begin in five years. Exports are even further afield, with some analysts suggesting 2020 as a start date. 

In 2011, the first (and only) gas was discovered offshore Cyprus, in Block 12, which is licensed to Houston-based Noble Energy Inc. (NBL). The block holds an estimated 8 trillion cubic feet of gas.

To date, the Greek Cypriots have awarded licenses for six offshore exploration blocks that could contain up to 40 trillion cubic feet of gas. Aside from Noble, these licenses have gone to Total SA of France and a joint venture between Eni SpA (ENI) of Italy and Korea Gas Corp. 

But the process of exploring, developing, extracting, processing and getting gas to market is a long one. Getting the gas extracted offshore and then pumped onshore could take at least five years and some very expensive infrastructure that does not presently exist. The gas would have to be liquefied so it could be transported by seaborne tankers.

The potential is there: Cyprus’ gas discoveries adjoin Israeli territorial waters where the discovery of the massive Leviathan gasfield (425 billion cubic meters or 16 trillion cubic feet) and smaller Tamar gasfield (250 billion cubic meters or 9 trillion cubic feet) have foreign companies in a rush to cash in on this.

There are myriad problems to extracting Cypriot gas—not the least of which is the fact that some of this offshore exploration territory is disputed by Turkey, which has controlled part of the island since 1974.

Gas exploration has taken this dispute to a new level, with Turkey sending in warships to halt drilling in 2011, and threatening to bar foreign companies exploring in Cyprus from any license opportunities in Turkey. The situation is likely to intensify as Noble prepares to begin exploratory drilling later this year in Block 12.

In the meantime, there is no shortage of competition on this arena. Cyprus will have to vie with Israel, Lebanon and Syria—all of which have made offshore gas discoveries of late in the Mediterranean’s Levant Basin, which has an estimated total of 122 trillion cubic feet of gas and 1.7 billion barrels of oil.

Blackmailing Cyprus?

While Greek Cypriot citizens are not willing to gamble away their savings on gas futures, Russia and the European Union are certainly less hesitant.

This is both a negotiating point for Cyprus and a convenient tool of blackmail for Russia and the EU. Essentially, the bailout is the prop on a stage that will determine who gets control of these assets.

Theoretically, Cyprus could guarantee Russia exploration rights in return for assistance. As much as this is possible, the EU could ease its bailout negotiations if it becomes clear that a Russian bailout of sorts is imminent.

Gas finds in the Mediterranean and particularly across the Levant Basin—home to Israel’s Leviathan and Tamar fields—could be the answer to Russian gas hegemony in Europe. The question is: How much does Cyprus count in this equation? A lot.

Though only half of the estimated resources in the Levant Basin, Cyprus’ potential 60 trillion cubic feet of gas could equal 40% of the EU’s gas supplies and be worth a whopping $400 billion if commercial viability is proven.

Russia is keen to keep Cyprus and Israel from cooperating too much toward the goal of loosening Russia’s grip on Europe before Moscow manages to gain a greater share of the Asian market.

Russia is also not keen on Israel’s plan to lay an undersea natural gas pipeline to Turkey’s south coast to sell its gas from the Leviathan field to Europe. Turkey hasn’t agreed to this deal yet, but it is certainly considering it. This is fraught with all kinds of political problems at home, so for now Ankara is keeping it as low profile as possible.

With all of this in mind, Russia is doing its best to get in on the Levant largesse itself. While it’s also courting Lebanon and Syria, dating Israel is already in full force. Gazprom has signed a deal with Israel that would give it control of Tamar’s gas and access to the Asian market for its liquefied natural gas (LNG). Tamar will probably begin producing already in April at a 1 billion cubic feet/day capacity.

In accordance with this deal, which Israel has yet to approve, Gazprom will provide financial support for the development of the Tamar Floating LNG Project. In return, Gazprom will get exclusive rights to purchase and export Tamar LNG. It is also significant because Tamar is a US-Israeli joint venture—so essentially the plan is to help Russia diversify from the European market.   

What does this mean for Cyprus? The chess pieces are still being put on the board, and both fortunately and unfortunately, Cyprus’ gas potential will be intricately linked to its bailout potential.

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Wile-E-Coyote's picture

After the nuclear war

maxmad's picture

Ah yes.... All according to plan!!

Say What Again's picture

OT but still funny.

Apple has pulled the "iForgot" webpage down for maintenance following reports of security issues.

Rogue Trooper's picture

A question, do 'they' still have those Neutron bombs (ERW)... You'll remember those marvels, kill all the people, but keep the infrastructure intact?

Would be bloody useful for OPLAN 666.


CompassionateFascist's picture

yes, Cyprus is "sitting on a lot natural gas" in "Goering lifted his left cheek, and a violent report ensued...".

stocktivity's picture

Meanwhile stocks rally on! As long as Benny and the Fed can print, It's all Bullshit!!!!

ParkAveFlasher's picture

Nice coincidence that Germany gets her gold at about the same time as Cyprus gets her gas online.  I call dibs on!

johngaltfla's picture

A little late, but at least the author gets the gist...this has been ongoing since 2011 when Israel announced the military base in the Greek sector of the island....


The Cyprus Crisis: It Isn’t what it Seems

PiratePawpaw's picture

"Exports are even further afield, with some analysts suggesting 2020 as a start date."

The grand game we are currently playing will have reached check-mate long before 2020. You would have to be a fool to play your cards out that far.............unless to a greater fool for current gain.

Caveat emptor............

schatzi's picture

I'm not buying into the check mate before 2020.

If anybody needs a reference as to how long and to what absurd levels the can will be kicked, just take a look at Japan. Is it untenable? Sure, but the fiat, credit driven economies will continue as long as the majority believe in it and the majority do not read Zero Hedge. I'm not even sure we'll see the end of the credit bubble in my lifetime.

Eireann go Brach's picture

What shocks me is that not one of those EU decision makers have been found in a ditch yet!

Rainman's picture

Whooda thunk the Eurozone was full of so much gas ?

kliguy38's picture

Shocking......its all about their

machineh's picture

Looters only want stuff that can be sold for quick cash.

Five years is another lifetime from that perspective.

Rogue Trooper's picture

It's frankly just embarrassing, a continental passing of 'wind', the Troika should be ashamed.

jonjon831983's picture

It's hard to say and I do believe there is an element of the gas case of EU vs Russia, but then why wouldn't say China, US, or other entities be vying to step in for the prospects?


heh imagine Turkey steps in to help... or Israel (with US credit card)

Kirk2NCC1701's picture

Greeks trusting the Turks?  Or Israelis?  Do you know anything about history of that part of the world?  Like the sign in the bar says: "We trust in God.  Everyone else pays cash".

Urban Redneck's picture

Wash, Rinse, Repeat... And fuck the Archduke Ferdinand moment, in this case the cliche works since at least the Crimean War (even most of the cast of leading and supporting performers is being recycled).

Gief Gold Plox's picture

Funny, how they always way for friday night and the market closing bell to start fucking with the system. Pure coincidence, I'm sure.

lolmao500's picture

Well fuck... They will steal the money...

MNI from netdania

Bend over, prepare the KY.... if you have time.

Likstane's picture

Why get Kentucky involved?  Usually they jus' mindin'deh own bizness.

willwork4food's picture

What does horse races got to do with Cyprus?

Cdad's picture

...both fortunately and unfortunately, Cyprus’ gas potential will be intricately linked to its bailout potential.

Huh...and all it took was a bunch of bankers with a windfall of Russian cash to fritter that asset away on crackhead derivative bets gone bad.  You'd think folks in Cyprus might be mad about that, too...along with everything else here.

Urban Redneck's picture

Actually it was a redux of the MF Global bond trade that is leading to the forthcoming Corzining of the Cypriot depositors.

Kirk2NCC1701's picture

So, these moves by the EU banks were to... disadvantage Greece & Cyprus financially (with toxic MBS/CDS assets from GS), just so they could get at these gas reserves at a deep discount or control? 

-->  "Fiat paper debt for Real Wealth" trick.  Didn't the Brits/Settlers get Manhattan that way?  Swap shiny, cheap trinkets for prime real estate?    CDS/MBS Long Island Style!  Some things never change.

FormerTurbineGuy's picture

It's funny, a few days ago I called a friend and noted this was all about the Natural Gas and with Obama going to Israel and their reserves close to the Cyprus Reserves, Iran and Russia didn't want this and the IAF going wheels up and hurting Russia's client Iran. After reading this article I am beginning to think I am not crazy. It is kind of interesting the Crisis in Cyprus occurred just before Obama went to Israel, hmmm.....

otto skorzeny's picture

israel/us want a puppet leading syria that they can stuff their fist up to control east med-it was never about human rights-always about $.

machineh's picture

Not to mention the puppet leading the US.

groundedkiwi's picture

and no one mentioning Gaza's claim to the gas as well.

The Abstraction of Justice's picture

Didn't Russia confiscate BP's oil resources in Russia, after BP was allowed invest in Russia?


Perhaps then the Cypriuts could sell all that oil in return for a big stinking gift to fix the bank, then do as the Russian have done.

The Heart's picture

"The potential is there: Cyprus’ gas discoveries adjoin Israeli territorial waters where the discovery of the massive Leviathan gasfield (425 billion cubic meters or 16 trillion cubic feet) and smaller Tamar gasfield (250 billion cubic meters or 9 trillion cubic feet) have foreign companies in a rush to cash in on this."

It always boils down to money. Here is a related article. Not sure if it made it around already. Scues the re-posting if it has.


maskone909's picture



otto skorzeny's picture

AAPLs #s are going to start looking like shit.

HowardBeale's picture

Beyond the coming dearth of Apple's sales--on a relative basis, will be the sudden disappearance-Corzination--of the 100+ billion, as it is going to be targeted by the countries harboring it. Witness Cyprus...

One day, AAPL shareholders are going to wake up to an announcement that the "cash/short-term investment portfolio" has inexplicably "decreased from $135 Billion to $70 Billion due to currency adjustments and foreign tax assessments"; not long after that, the frantcially repatriated cash will "unfortunatley suffer the original tax burden relavent to the actual earnings time period, which, in the final outcome, means that the tax basis is the original $135 Billion at the nominal rate of 35%, thus reducing--before bonus allocations--the net cash postion to $45.5 Billion; after bonus allocations, to $22.75 Billion, which SHOULD cover dividends--if dividends are continued, for the 2013-14 tax years...

otto skorzeny's picture

I thought a big part of Israel fucking w/ syria was gaining alot more control of eastern med gas fields and pipeline control-kind of like their bully-boy buddy uncle sam. you know what they say-especially when it comes to the hebes-follow the $

Arthur's picture

Exactly how is Israel screwing with Syria?  If you bothered to look at a map you might notice where Turkey sits in relationship to Syria and the Mediterranean Sea.

The big dog in the gas fight is Russia, not Israel or the US.  The next big player is Turkey.  Perhaps if you took your prejudicial blinders off you might have understood  the article.


otto skorzeny's picture

let me break it down for you. iran wants to run a pipeline through the kurds (who the turks hate and regularly kill and don't want to become wealthy enough to buy weapons to fight the asshole turks) land in N iraq to syria to give them more access to europe markets- alot of the russian jew oil/gas enriched oligarchs w/ strong ties to israel don't want to lose their monopoly w/europe- do you fucking get it now- take your fucking blinders off.

earleflorida's picture

and since the jewish state has found its manna [blue gold]... there's no rush too go to war with iran-- afterall, iran has the [#2] largest nat gas fields in the world today... except for russia[gasprov [#1], turkmenistan [#3 [*gasprov], and  quatar[#4]!

but, let's talk about cyprus... not even mentioned on wikipedia as a nat gas discovery-resource/ beneficiary country-- what gives? israel, lebanon, and syria are there, but, no cyprus-- again, what gives?!

turkey!? and the squeeze-is-on literally and verbally to join the 'eu' at any cost, asap...  getting a cushioned seat at the G20 as a bonus-- that being where all the hot/action/money flow is created?! the spice route of old-- remember the 'Ottoman Empire', our Alamo, that opened up s. america???

**shell's floating a nat gas giant [fling]!**  the ,'all-in-one-energy-concubine?'-- who needs unnecessary exposed? [terrorist honey-pots?] pipelines, costly landbased processing plants [terrorist beehives?!], international [ocean/sea's?] water laws, etc.,etc., when you can do it at poe* [point of extraction]... eureka!      google:(   google:(

btw: hat tip to the author for an excellent, and [timely] relevant  energy subject-matter

thankyou tyler

otto skorzeny's picture

that big shell floating island might as well have a bullseye on it

dark pools of soros's picture

Which would be used as a false flag well before anyone else dreams of actually attacking it

What ya think, Mossad just gonna play with thier dreidels in peace now?

uranian's picture

doom overload, doom overload. i've been expecting this shit for years, but as it happens, wow. what do we have, half of week of relative normality left as this stage? when cypriot banks reopen, normalcy bias is going to find itself seriously challenged,

ebworthen's picture


Mediterranean naval battles for the 21st century!  Yeah!

auric1234's picture

Cyprus Popular Bank up 4.65% today.

Something is really crazy in that island.


Urban Redneck's picture

They flipped it (and all the worthless Greek debt that is over marked on their balance sheet) to a bankrupt Greek bank (Piraeus Bank) which can swap it with the equally bankrupt Greek Central Bank who can swap it with the equally bankrupt ECB...

Monedas's picture

People of goodwill should leave their money in the Cypriot banks .... they are going through a difficult time .... and a little solidarity would be welcome !       MillionDollarMonedas_    

I_Am_'s picture

That MDB Ref is indeed comedy jihad 

Monedas's picture

MDB is either very clever or very stupid .... either way .... it took me a while to imitate him a little .... he is the master of the art form !