Nicosia: Europe should not worry about bailing out crisis-hit Cyprus because the island’s huge untapped gas reserves will benefit the European Union by making it less dependent on Russian energy, analysts say.
Despite struggling under a Greek-exposed debt mountain, the east Mediterranean island sits on potentially huge energy wealth in excess of 600 billion euros, a Royal Bank of Scotland report said.
Cyprus hydrocarbons company chief Charles Ellinas says the island will be exporting to Europe by 2019 with a view to meeting 10 percent of the bloc’s energy needs.
“This is not totally hypothetical. Europe has a huge dependence on Russia and Cyprus can help reduce that,” he told AFP.
“If you look beyond the next couple of years the future looks rosy. After 2020 we will start to pay off our debt and eventually create a surplus.”
RBS said that despite now facing potential bankruptcy, Cyprus’s future energy riches will be a boon.
“Cyprus will become geopolitically important for gas pipeline routes, and Europe should benefit from greater energy security away from Russia,” the RBS report said, also sounding a cautionary note.
“These monies however are not readily available; the commodity spoils of Europe’s new lucky country are a medium- to long-term story.”
If further exploratory drillings match the success of the first findings, these could top 2,950 percent of GDP.
“The long-term potential of Cyprus is very good but in the short term it has to make adjustments through the austerity measures as part of any loan deal. Gas reserves are there but need time to be exploited,” RBS analyst Michael Michaelides said.
Offshore exploration by Houston-based Noble Energy in Block 12 of Cyprus’s Exclusive Economic Zone indicates a gross natural gas reserve of up to 254.9 billion cubic metres (9 trillion cubic feet).
Noble expects to commercially extract and transfer the gas onshore by late 2018 and begin exporting to Europe the following year.
Italian giant ENI, France’s Total and South Korea’s Kogas are all negotiating for permits in other offshore blocks.
Analyst Fiona Mullen estimates that the current finds alone could mean gas revenues of at least one billion euros annually.
“So the revenue will be very significant when it comes. But I think we won’t see any significant revenue for 15 years,” she said.
Mullen said that is why it is important for international lenders to give Cyprus a lengthy loan repayment period rather than the four years envisaged.
“Cyprus will need to find more gas before it can find finance for an LNG plant, which puts back the financing a few more years. Then it could take 10 years to build the plant, so it could be 15 years before the plant is built and the money flows.”
Nicosia is looking to borrow some €17.5 billion — almost 100 per cent of its annual GDP.
The finance ministry concedes that without a quick bailout agreement, the eurozone country faces “bankruptcy”.
Eurozone finance ministers are due to meet on Monday to discuss Cyprus’ aid request, but a final decision is not expected then.
Finance Minister Vassos Shiarly said Nicosia had “satisfied all the demands” of international lenders, with the figure for bank recapitalisation the only missing piece.
Shiarly said on Friday the eurozone ministers’ meeting would not have a final figure for the amount needed by the banks, expected to be up to 10 billion euros but with the government hoping to lower it.
“Probably the magic number won’t be known in the next couple of days,” Shiarly told state radio, adding that another eurogroup meeting on bank recapitalisation was “unavoidable”.
This would mean an eventual agreement would be signed by a new government following a presidential election on February 17.
Nicosia applied for financial aid in June after its two largest banks, severely rocked by losses connected with the Greek debt crisis, sought state support.
Cyprus has already pushed through tough austerity measures to meet demands for more than one billion euros in cuts and savings.