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

Tyler Durden's picture




 

Submitted by Jen Alic of OilPrice.com,

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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Fri, 03/22/2013 - 19:11 | 3364260 Wile-E-Coyote
Wile-E-Coyote's picture

After the nuclear war

Fri, 03/22/2013 - 19:22 | 3364303 DJ Happy Ending
DJ Happy Ending's picture

That's a practical approach

Fri, 03/22/2013 - 19:26 | 3364320 maxmad
maxmad's picture

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

Fri, 03/22/2013 - 19:30 | 3364331 Say What Again
Say What Again's picture

OT but still funny.

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

 

http://appleinsider.com/articles/13/03/22/new-security-hole-allows-for-a...

Fri, 03/22/2013 - 21:28 | 3364654 Rogue Trooper
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.

 

Fri, 03/22/2013 - 22:02 | 3364748 CompassionateFascist
CompassionateFascist's picture

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

Fri, 03/22/2013 - 19:33 | 3364344 stocktivity
stocktivity's picture

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

Fri, 03/22/2013 - 19:48 | 3364380 ParkAveFlasher
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 gas4gold.com!

Fri, 03/22/2013 - 19:48 | 3364381 FieldingMellish
FieldingMellish's picture

Bullish for protons.

Fri, 03/22/2013 - 19:57 | 3364390 johngaltfla
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

Fri, 03/22/2013 - 20:40 | 3364525 PiratePawpaw
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............

Sat, 03/23/2013 - 07:42 | 3365161 schatzi
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.

Fri, 03/22/2013 - 21:37 | 3364680 Eireann go Brach
Eireann go Brach's picture

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

Fri, 03/22/2013 - 19:14 | 3364270 Rainman
Rainman's picture

Whooda thunk the Eurozone was full of so much gas ?

Fri, 03/22/2013 - 19:16 | 3364278 kliguy38
kliguy38's picture

Shocking......its all about their gas......lol........

Fri, 03/22/2013 - 19:41 | 3364365 machineh
machineh's picture

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

Five years is another lifetime from that perspective.

Fri, 03/22/2013 - 21:32 | 3364666 Rogue Trooper
Rogue Trooper's picture

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

Fri, 03/22/2013 - 19:17 | 3364284 jonjon831983
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)

Fri, 03/22/2013 - 19:28 | 3364329 Kirk2NCC1701
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".

Fri, 03/22/2013 - 19:40 | 3364360 Urban Redneck
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).

Fri, 03/22/2013 - 19:21 | 3364299 Gief Gold Plox
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.

Fri, 03/22/2013 - 19:26 | 3364301 lolmao500
lolmao500's picture

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

CYPRUS RULING PARTY SET TO VOTE YES ON BANK OVERHAUL BILL
MNI from netdania

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

Fri, 03/22/2013 - 22:58 | 3364863 Likstane
Likstane's picture

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

Sat, 03/23/2013 - 00:17 | 3364950 willwork4food
willwork4food's picture

What does horse races got to do with Cyprus?

Fri, 03/22/2013 - 19:22 | 3364304 Cdad
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.

Fri, 03/22/2013 - 19:44 | 3364371 Urban Redneck
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.

Fri, 03/22/2013 - 19:32 | 3364309 Kirk2NCC1701
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.

Fri, 03/22/2013 - 19:24 | 3364312 FormerTurbineGuy
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.....

Fri, 03/22/2013 - 19:40 | 3364362 otto skorzeny
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 $.

Fri, 03/22/2013 - 19:42 | 3364369 machineh
machineh's picture

Not to mention the puppet leading the US.

Sat, 03/23/2013 - 01:14 | 3364994 groundedkiwi
groundedkiwi's picture

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

Fri, 03/22/2013 - 19:29 | 3364332 The Abstraction...
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.

Fri, 03/22/2013 - 19:30 | 3364334 The Heart
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.

http://money.cnn.com/2013/03/21/news/economy/cyprus-natural-gas/

 

Fri, 03/22/2013 - 19:31 | 3364339 maskone909
maskone909's picture

QUESTION:

DOES CNBC GET PAID EVERY TIME THEY TALK ABOUT APPLE?!?!? WTF IM SICK OF THIS SHIT

Fri, 03/22/2013 - 19:37 | 3364353 otto skorzeny
otto skorzeny's picture

AAPLs #s are going to start looking like shit.

Fri, 03/22/2013 - 22:20 | 3364781 HowardBeale
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...

Sat, 03/23/2013 - 04:45 | 3365100 css1971
css1971's picture

Almost certainly.

Fri, 03/22/2013 - 19:36 | 3364351 otto skorzeny
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 $

Fri, 03/22/2013 - 19:51 | 3364392 Arthur
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.

 

Fri, 03/22/2013 - 20:15 | 3364459 otto skorzeny
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.

Fri, 03/22/2013 - 22:02 | 3364650 earleflorida
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!  

http://www.shell.com/global/future-energy/meeting-demand/natural-gas/fling.html      google:(

http://en.wikipedia.org/wiki/Turkey

http://en.wikipedia.org/wiki/List_of_countries_by_natural_gas_proven_reserves   google:(

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

thankyou tyler

Fri, 03/22/2013 - 22:46 | 3364834 otto skorzeny
otto skorzeny's picture

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

Sun, 03/24/2013 - 11:11 | 3368375 dark pools of soros
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?

Fri, 03/22/2013 - 19:41 | 3364366 uranian
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,

Fri, 03/22/2013 - 19:43 | 3364372 ebworthen
ebworthen's picture

Oooh!

Mediterranean naval battles for the 21st century!  Yeah!

http://www.mediterranean-yachting.com/naval-battles.htm

Fri, 03/22/2013 - 19:51 | 3364393 auric1234
auric1234's picture

Cyprus Popular Bank up 4.65% today.

Something is really crazy in that island.

 

Fri, 03/22/2013 - 20:35 | 3364508 Urban Redneck
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...

Fri, 03/22/2013 - 20:01 | 3364422 Monedas
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_    

Fri, 03/22/2013 - 20:44 | 3364539 I_Am_
I_Am_'s picture

That MDB Ref is indeed comedy jihad 

Fri, 03/22/2013 - 21:39 | 3364684 Monedas
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 !

Fri, 03/22/2013 - 20:40 | 3364528 HeavydutyMexica...
HeavydutyMexicanOfTheNorthernKingdom's picture

So fracking in the Mediterranean is what's going to release Leviathan from it's ancient prison.  

 

http://www.youtube.com/watch?v=w9kZJ7myIl4&feature=player_detailpage#t=18s

 

Sun, 03/24/2013 - 11:16 | 3368395 dark pools of soros
dark pools of soros's picture

That is why Japan is re-energizing Godzilla with radiation

Fri, 03/22/2013 - 21:11 | 3364602 q99x2
q99x2's picture

At this point they can survive off of last weeks check (unless they only get paid every two weeks) and pool their money to go after the bankster theives that are holding their savings hostage. Don't they have any swat teams over there..

Sun, 03/24/2013 - 11:18 | 3368397 dark pools of soros
dark pools of soros's picture

What savings?

-Corzine

Fri, 03/22/2013 - 21:10 | 3364605 hmmtellmemore
hmmtellmemore's picture

It's going to be tough to steal from the Russians after Putin gets a naval base on Cyprus in return for bailouts.

 

http://www.theatlanticwire.com/business/2013/03/russia-cyprus-euro/63388/

Fri, 03/22/2013 - 22:41 | 3364821 WallowaMountainMan
WallowaMountainMan's picture

what?

Sat, 03/23/2013 - 01:32 | 3364999 TBT or not TBT
TBT or not TBT's picture

Well exactly. Also, 2020 is post mad max world, based on the editorial guidelines of this here zero hedge. I'm in agreement but incorrect so far. Long popcorn.

Sat, 03/23/2013 - 05:52 | 3365123 Freebird
Freebird's picture

Reminds one of those "deep gold reserves" sitting on a certain balance sheet

Sat, 03/23/2013 - 08:09 | 3365177 rsnoble
rsnoble's picture

Yeah right.  And about the time the gas starts flowing they'll be broke again and they'll need to suspend payments on that also.  Get the fuck out of the EU and please set an example for all the nutcase empire builders that the Amero is impossible.  That is still alive btw.

Sun, 03/24/2013 - 11:26 | 3368420 dark pools of soros
dark pools of soros's picture

The Amero could work but only if America ditches the whole middle east and jewville and swings a deal for Hugo's oil and the rest of south America's resources.

A unified whole America with no bullshit middle east nonsense would be interesting

You'd have to kick a lot of Jews back over the Atlantic first

Sat, 03/23/2013 - 08:18 | 3365187 Bicycle Repairman
Bicycle Repairman's picture

Of course the Peak Oil guys saw all of the natural gas discoveries in the Eastern Mediterranean coming a mile away.  Funny how these new sources of "fossil fuel" show up just when they are needed.  I wonder if this new energy solves any systemic economic problems.

BTW, there is no natural gas in the rest of the Mediterranean.  BP assures me.

Sun, 03/24/2013 - 11:32 | 3368440 dark pools of soros
dark pools of soros's picture

So we can just wake up tomorrow with no more plastic containers and driving electric cars? Any other oil based by-products I'm leaving out? Quite a few?

Sat, 03/23/2013 - 10:53 | 3365430 falak pema
falak pema's picture

60 trillion cu ft compares well with Qatar's 160 trillion cu ft potential as ME region's second producer behind Iran 1000 trillion cu ft.

If on a prorated basis Qatar produces 3 trlllion cu ft/yr of gas, mostly as LNG, Cyrpus could produce near to 700 B cu ft/yr as LNG; (80 year field depletion). At 18 $/Million Btu LNG price today in ME that is equal annual revenues of :

18 x 1.02 x 700 Million = 12.9 billion $/yr. Net of LNG plant pay back/amortisation costs that should generate 8-10 $ billion /yr revenues to share holders.

Sat, 03/23/2013 - 11:34 | 3365510 Monedas
Monedas's picture

Cyprus can't have too much gas .... ya need a big aluvium to trap the biomass .... like Tigris/Euphrates !

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