Cyprus stuck in the middle with export options
Angus Miller, commercial director at QuinSec: ‘Political factors have facilitated commercial factors.’ (QuinSec)
Angus Miller – commercial director of security consultants QuinSec and Caspian energy adviser at the Foreign & Commonwealth Office in London – spoke to Interfax about the potential for exporting East Mediterranean gas to Turkey and Europe.
Interfax: Cyprus seems completely unwilling to even discuss the transport of Israeli gas through its exclusive economic zone to Turkey until the Cyprus problem is resolved. Is that a conducive attitude towards finding resolution?
Angus Miller: I can understand that, and I wonder sometimes how much [of what is said] is for local consumption and how much is pragmatic. I found the Cypriot ministers’ talk this morning very articulate – particularly the finance minister’s.
[They were] very aware of the issues and willing to talk about them, and I see that as a big difference from three or four years ago when the attitude was very much ‘the gas is ours, we’ll all be rich and there is no [need for] discussion’.
I see a far more rational attitude towards it now, and [Cyprus is] not allowing it to cloud other issues. Harris Georgiades, the finance minister, said this morning development of the economy and the rule of law will facilitate investment and that will facilitate the industry – rather than getting the industry in first and assuming everything will be all right.
From my perspective, formerly as a government adviser and latterly as an observer, I see that as a far more wholesome, realistic approach.
Interfax: Energy developments in the past five years have brought Israel and Cyprus closer together. However, the Leviathan partners are quite openly assessing the possibility of exporting gas to Turkey, despite Cyprus repeatedly saying that under no circumstances would this be possible.
How is that affecting the relationship between Israel and Cyprus? Is Israel undermining Cyprus by even examining a project at this stage?
AM: It might be, but it might also be used as a lever to get [Cyprus] to do something. But I think from an Israeli perspective, they’re doing what you would expect them to do and, I have to say, with a degree of transparency one would not necessarily expect given Israel’s history and its position.
Interfax: How do you think negotiations with the Leviathan partners have been influenced by the Israeli government’s desire to increase cooperation between neighbouring states? The government has made it almost impossible for the Leviathan partners to build an onshore LNG plant – which was their preferred option – so they’ve been forced to consider regional pipeline options.
Do you think this is a strategy on the part of the government – even if it has no ownership over the gas – to direct exports where it wants?
AM: Governments will always try to exert more power and authority than commercial enterprises would want. They do have strategic objectives and a regional role, and they need to secure their future.
But I think the fact they were willing to sell 60% of their gas for export [shows] the political side has actually facilitated the commercial side, which says ‘we’re not selling to a single buyer, we’re not selling into a saturated domestic market – Israel’s demand is finite – and we need to bring in revenue’. It’s about selling the gas, and if they don’t sell it then nobody benefits.
[But exports weren’t guaranteed because] there were certainly people within the Knesset in Israel objecting because, [as things stand], the thought was ‘we might reserve ourselves 40 years of gas, but if you don’t sell any of it, we’ll have 100 years of gas’.
Israel was an importer of gas from Egypt. During the Egyptian uprising the pipeline was continually blown up, and that demonstrated to Israel the importance of having the upper hand – to be the supplier rather than the importer.
That shows the importance of supplying gas to your neighbours: it’s so you have a relationship with them and are able to tie them in. On that basis, selling gas to Jordan makes a lot of sense.
Interfax: Cyprus is talking a lot about becoming an LNG hub for Europe. How viable do you think that is? Is that something regional players have expressed an interest in?
AM: I’m curious to understand what a hub means. Turkey for years was pushing itself as an energy hub when Nabucco was being promoted by members of the EU.
Every country along the transit route was going to be an energy hub and you have to think: one supply, one market – where is the hub in that, unless you’re taking rent out all along the way?
So it has to be clearly demonstrated or articulated what a hub is. A hub can’t be a hub with only one supplier, so if it’s only Cypriot gas, it wouldn’t be a hub.
Interfax: But Cyprus also wants to be the base for exporting LNG from Israel and potentially Lebanon.
AM: It’s a big ask to build a gas processing plant on the basis that Lebanon might find some gas when it puts the right decree laws in place. It has already been through a licensing round, and that has been spectacularly unsuccessful.
The politics of Lebanon would point to it not being developed within the next 5-10 years, and that’s not a cynical poke at them at all – they have other things to worry about, and offshore resources are not a top priority.
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