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FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0036
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE IMMEDIATE
RUEHAK/AMEMBASSY ANKARA IMMEDIATE 5501
RUEHTV/AMEMBASSY TEL AVIV IMMEDIATE 6480
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE

C O N F I D E N T I A L SECTION 01 OF 02 NICOSIA 000488

SIPDIS

E.O. 12958: DECL: 10/28/2019
TAGS: ECON PREL ENRG EPET CY
SUBJECT: CYPRUS: REGIONAL BENEFITS FROM NATURAL GAS IN THE
EASTERN MEDITERRANEAN - NOBLE ACTIVITY MOVING AHEAD

REF: A. NICOSIA 351
     ¶B. NICOSIA 344

Classified By: CDA JONATHAN COHEN FOR REASONS 1.4 B AND D

¶1. (C) Summary. Houston-based Noble Energy will conduct
seismic exploration in its offshore Cypriot and Israeli blocs
beginning the end of September and expect to finish about two
months later. We anticipate the Turkish Cypriots will object
to the exploration activity, arguing that offshore assets
belong to all Cypriots. Turkey, while not likely to make any
claims of its own on the Noble bloc, will strongly defend
Turkish Cypriot "rights." The earliest gas might flow from
Cypriot deposits is 2015. In meetings with a variety of
actors in the RoC energy sector, Noble's new country manager
for Cyprus found interest in the idea of a pipeline
connecting offshore gas deposits in the eastern Mediterranean
to Cyprus and, perhaps, on to Turkey and Europe. We will
explore the possibility that this idea might defuse some of
the tension over offshore exploration to the island's south
and east. End Summary.

¶2. (SBU) Noble Energy's newly-appointed country manager for
Cyprus, Colin Sinclair, arrived to take up his duties on the
island on June 25. Sinclair has had meetings with the
Minister of Commerce, Energy Regulator, Chairman of the
Electricity Authority (semi-government electricity monopoly),
president of the Chamber of Commerce and Industry, the
Israeli Embassy, the Cyprus Investment Promotion Agency, and
the U/S of Energy over the past three weeks in order to
introduce himself and his company to the business and energy
communities and to continue building good relations with the
GoC.

¶3. (C) Noble plans to collect additional seismic data on
offshore blocs in Israeli and Cypriot waters beginning in
late September. The company will charter a seismic research
vessel out of Israel which will then "stray" into Cypriot
waters. Data collection is expected to be completed by late
November and the determination of whether the data supports
drilling test wells would be made by mid-2010. Even with
excellent results, the earliest gas could flow from any
Cypriot deposits would be 2015. Despite the extended
timeframe, Turkey and the Turkish Cypriots will likely object
on the grounds that the GoC does not speak on behalf of
Turkish Cypriots, who beleive they are entitled to have input
into any offshore development plans and share any of the
proceeds from production. Turkey also disputes in general the
rights of an island to a EEZ beyond a 12-mile limit, although
recent maps released by the Turkish Petroleum Company (TPAO)
seem to indicate that they will apply this only to the west
of Cyprus.

¶4. (SBU) At every meeting, Sinclair has spoken about Noble's
gas discovery announced on July 7 at the Tamar-2 location
offshore Israel. In conjunction with the Tamar-1 site Noble
had previously disclosed, the structure constitutes the
largest find in the company's history, 6.3 trillion cubic
feet of gas (99.7% pure methane) equivalent to over 1 billion
barrels of oil. Noble suspects that a similar structure may
be found in Cyprus' bloc 12, abutting Israel's EEZ, to which
Noble acquired exploration and production rights in October,
¶2008. There is already an onshore gas processing facility in
Israel and Noble intends to have the first gas from Tamar
delivered to it in 2012. Sinclair has made clear in his
conversations with Cypriot officials that Cyprus should
consider using Tamar as a source of gas for Cyprus. This
would require either a gas liquefaction plant to be built in
Israel (to complement a long-planned LNG terminal in Cyprus,
which remains in the planning stage) or, preferably, the
construction of an undersea gas pipeline between Israel and
Cyprus. Noble believes this same pipeline could be used to
bring gas ashore to Cyprus if sufficient deposits are
eventually found in Noble's Cypriot bloc.

¶5. (SBU) If Tamar were able to deliver gas to Israel by 2012,
and a pipeline to Cyprus could be built in the same
timeframe, this would allow Cyprus to use gas for electricity
generation more quickly than the 2013 date Cypriot officials
anticipate for completion of a LNG terminal (Sinclair
believes this timeline for construction of a LNG terminal is
extremely ambitious.)  For thepastsx mots, Cpus hs
benpurcain arbo creis u t allig welshr of
itsKot blgtion. Thr aesevealostace Nbe'
Cypiot neroutr hav menine o rngin Isrei a
t Cypu:
-    Thecosto tepieine athuh icli beleesiwuld e lesthnth os f th LNG terminal.)
-     Concern among the Cypriots that a pipeline does not
allow for storage in case of a pipeline breakdown.
-     Planning for the LNG terminal has been delayed for
years. To shelve the project now would require a shift in
momentum. There is some discussion of having both the
pipeline and the terminal.
-     If significant gas is discovered offshore Cyprus, what
would be done with the additional gas being purchased from
Israel?

¶6. (C) As a means to overcoming these obstacles, Solon
Kassinis, the U/S of Energy, argues that Cyprus should extend
the proposed pipeline to integrate eastern Mediterranean gas
into the Nabucco pipeline in Turkey. While acknowledging the
political difficulties, Kassinis believes that creating a
common economic incentive for developing the region's energy
assets would lower the political tensions around offshore
resources and complement the stated Turkish goal of creating
a more-integrated regional economy.  He believes the first
step is for Cyprus and Israel to reach a mutually agreed
demarcation of their EEZs, a process reportedly requiring a
new law in Israel. (Comment. Kassinis says Cyprus would
happily accept an MOU in lieu of waiting for Israel to pass a
law. End Comment) Until this issue with Israel is resolved,
The GoC will oppose Noble selling an interest in its Cyprus
bloc to its major Israeli partner, Delek Drilling. Noble
wants to sell a significant minority portion of its Cyprus
bloc to Delek to reduce its risk on the Cyprus exploration
and ensure its interests are aligned with their Israeli
partner's.

¶7. (C) Comment. Sinclair has noted several times that the
Department of State played a key role in the negotiations
leading to connecting Egyptian gas from offshore Sinai into
the Israeli gas grid and that this was done to link the
countries together economically. The Minister of Commerce
expressed his keen interest in Cyprus becoming an energy
exporter, but noted his concerns about doing business with
Turkey until the Cyprus problem is settled. Offering a way
for Turkey to benefit from regional gas deposits could remove
one obstacle to the success of the reunification talks. We
will probe whether the possibility of a regional pipeline
might be used within the context of the talks to reduce
tensions.
Cohen