Lakkotrypis: Cyprus energy developments an incentive for Turkey

By Katerina Sokou

As Turkey raises the stakes in the Eastern Mediterranean with violations and threats of drilling in Cyprus’ exclusive economic zone (EEZ), the Cypriot minister of energy, commerce, industry and tourism notes that “the best response is for us to continue to implement our energy strategy unfettered.”

Indeed, last weekend Yiorgos Lakkotrypis confirmed that the Republic of Cyprus is close to agreement with the Total-ENI joint venture for offshore drilling in another area. In an exclusive interview with Kathimerini, Lakkotrypis focused on the merits of regional partnerships such as the East Med Gas Forum and the role of the European Union and the United States in ensuring stability for investors. As for the Turkish claims, he stressed that Cyprus “is ready for all scenarios” but added that “we need to avoid playing the destabilization game that Turkey is pursuing.”
 

How are the energy finds in the Eastern Mediterranean basin affecting a potential solution to the Cyprus issue? Do you think they make it harder?

I honestly don’t see how it makes it harder than it already is. Such a longstanding issue is very difficult, as has been proved. We hope that the energy developments in the region, and in Cyprus in particular, will be an incentive for Turkey to return to the negotiating table and help solve the Cyprus problem. It’s no secret that the remaining countries are coming together: The East Med Gas Forum was created earlier this year, and we will meet again soon in Cairo. It comprises Cyprus, Egypt, Greece, Jordan, Israel, Palestine and Italy, and we are coming together not only to see how we can make the East Med more competitive – how we utilize common infrastructure and what infrastructure we need to monetize the gas. We are also coming together to help create the stable environment needed to give companies the confidence required to invest the billions needed to develop these resources. So, everyone else is coming together, sharing common values, respecting the United Nations Convention on the Law of the Sea (UNCLOS), respecting each other and their rights to exploit and explore their natural resources. This is not a club or partnership that excludes anyone else; Turkey is welcome, so long as it abides by the rules upon which it is based.

That said, Turkey is creating issues with its own claims in parts of the Cyprus EEZ. Recently an ExxonMobil executive said he feels there is no controversy about its rights to drill in Block 10. Are all the companies exploring for hydrocarbons in Cyprus on the same page in their claim to safety?

They are. To answer, I have to explain Turkey’s theory about the Cyprus EEZ. Turkey believes that Cyprus has a continental shelf to the east, so it expands beyond 12 nautical miles – but not to the extent to which we have signed the delineation agreements with Israel, Lebanon and Egypt. But west of the island, it doesn’t believe that Cyprus has a continental shelf, so its EEZ is limited to 12 n.m. Basically, this means that if we adopt Turkey’s interpretation, we will be left with 30 percent of what our EEZ is today. All of the discoveries that we’ve had so far would fall in different countries: Aphrodite in Israel, Calypso and Glaukos in Egypt… So if you take this very weird Turkish view of our EEZ, then one would wonder how Turkey can make the argument that it is protecting the Turkish Cypriots’ rights; how do you do that when you are trying to limit their EEZ to 30 percent of what it actually is?

Still, the argument is that because ExxonMobil is American no one will touch the Americans, whereas this may not be the case with the others.

Look, there is no doubt that the more interest we have from countries such as the US and France in the Cyprus EEZ, the closer we come to those countries. It’s no coincidence that relations between the US and Cyprus have improved over the past few years. We’ve had Noble operate those discoveries [and] Exxon, which is operating in Cyprus, now has discoveries too, so it’s not a coincidence. And it’s not a coincidence that France is interested as a country in operating in the Eastern Med – Total actually plays a role in this. There is no doubt that countries pursue the interests of their own companies wherever they operate. And this is what we are trying to do, to keep the interest alive... The East Med Gas Forum is also strongly supported by the EU and the US, so any support we get from the US is crucial not only for Cyprus but also for the East Med in general. It’s no secret that the East Med is geopolitically challenging, so you need support from the EU and the US in order to advance this.

Going back to Turkey, there are reports that Jared Kushner, who is currently senior adviser to his father-in-law, US President Donald Trump, may present the idea of a pipeline from Israel to Turkey. Do you feel that this might undermine your trilateral cooperation with Greece and Israel? Would it be welcome as far as Cyprus is concerned?

The idea of a pipeline between Israel and Turkey, going through the Cyprus EEZ, is not new – it’s something that resurfaces every now and then. We saw it come to the surface three to four years ago, and of course it died away, both for commercial and geopolitical reasons, and I’m referring to the relationship between Cyprus and Israel. Any such pipeline would have to go through the Cyprus EEZ, so it would need the permission of the Cyprus government. And I don’t see how that would be possible without a normalization of relations with Turkey. Where does Turkey’s jurisdiction in the seas end and where does Cyprus’ begin? And vice versa, we haven’t delineated – and I explained what the Turkish version of our EEZ is.

Let me give you another example. Recently we signed an intergovernmental agreement with Egypt, saying that this is the pipeline and the jurisdictions that we have and the security and safety rules that we will abide by. This intergovernmental agreement was required by the investors because they want investment certainty, not limited by relations between the current governments, as governments come and go, but embedded in an intergovernmental agreement because these projects last for decades. So, they wanted one that would last for many years and dictate the rules of the game. For the East Med pipeline, we are doing something similar too. So the four countries – Italy, Greece, Cyprus and Israel – have already agreed on the text for the intergovernmental agreement, which is required by the investors to create political certainty. I believe that it will be signed soon, as it’s already been sanctioned by the European Union as well, as according to the acquis the EU has to approve all the pipelines that cross EU borders, and all that remains now is to fix a date and basically sign it. But how is it going to happen in this case if relations between Turkey and Cyprus are not normalized?

We’ve seen the warming of relations with the US at the diplomatic level, but there’s also Congress, and of course the White House.

Absolutely, we feel that in all levels of government the relationship is getting stronger and stronger.

Talking about the US Congress, how do you assess the Eastern Mediterranean bill that was introduced by Senators Bob Menendez and Marco Rubio?

This is also a testament of the improved relationship between the two countries, between the US and the East Med, as the US is promoting the interest of its own companies in the Eastern Mediterranean.

Do you think that it might aggravate other powers in the region, like China and Russia? Is there a danger of creating an area of geopolitical competition that might undermine the area’s best interests?

Look, the EU itself is looking for alternative sources of gas and resources; its own resources are depleting, so it’s looking for new sources and routes to avoid creating other dependencies. The East Med – with all the discoveries that we’ve had over the years, and hopefully those we will have in the near future – is proving to be such an alternative option for Europe. Now let’s also not forget that the US is also shipping liquefied natural gas (LNG) to international markets. So, here you have aligned interest in trying to create an alternative supply source for the EU. However, at the same time, the East Med gas needs to be competitive in international markets, because it’s not the only region aspiring to be an exporter, the US is as well. It shipped 40 billion cubic meters (bcm) of LNG last year and apparently that number will rise to about 100 bcm by 2020. So, I think that what is happening in the East Med is impacting the technical aspect, the financial/commercial aspect, but also the political aspect. This is always the case with energy.

Regarding financing and investor interest, would the confirmed reserves make a new LNG facility in Cyprus feasible?

We need more resources for that. For Aphrodite it will be in Egypt, because the project is at a different level of maturity. It was discovered in 2011, all the work has been done, the market is there… And let’s not forget that as a region we are all looking to how to utilize existing infrastructure, to also look to greenfield projects, like the LNG plant or the East Med pipeline. And we are advancing both of those options at the same time, until the moment comes that we choose.

So is it a question of either/or?

It depends on the resources. Let me put it this way: In Cyprus we have massive expertise in LNG, the companies operating in the country do, and some of them are not shy to say that this is their preferred option, should the numbers make sense, and therefore this is why we need to continue with that exploration work, to finally establish the size of resources, and what options make sense. Each of them have pluses and minuses: An LNG plant offers flexibility, you can ship the gas anywhere you like, but it’s also more challenging in the sense that it requires big resources. On the other hand, a pipeline is fixed, it’s technically challenging, it delivers gas to a specific market but it has no flexibility. One must weigh the benefits. So that’s a question mark. More importantly, is there a market? At what price will we send the East Med gas to Italy and elsewhere in Europe? Is there a market for it that would agree to pay the price? Is there a market for the LNG plant? What would the price of the gas be in this competitive environment that we have? These are the primary questions that will eventually determine the answer.

So will the answer be determined longer-term, based on the results of the ongoing exploration?

Yes, the one thing that is certain is that we are aiming for Aphrodite gas to be piped to Egypt and then liquified and sent to the European market. Because, let’s not forget, we are no longer talking about technologies but about a corridor. We want to create a corridor of natural gas from the East Med to the EU, and that corridor will inevitably comprise many technologies: pipeline, LNG plant, potentially floating LNG facilities. Take the example of Aphrodite: We will send the gas via pipeline to Egypt, it will be liquified, piped into ships, and then sent to one of the LNG terminals in Greece, where it will be regasified and piped to Europe. That’s why we talk about a natural gas corridor, that will comprise a number of options.

We are speaking on the sidelines of the EastMed-New York Investment Summit organized by Economist Events in New York City. Are you satisfied with the level of engagement you are seeing from investors?

If the resources are there, if the market is there, the investors will be interested. This is what we have seen in the Aphrodite field, there is a lot of interest in investing in the infrastructure. And, certainly, if the numbers make sense, I think that the investors will not be shy.