By James Burgess
April 2 2013
Where does the Cyprus bailout deal leave its energy reserves?
It has been estimated over the years that the southeastern waters of Cyprus contain 50 to 60 trillion cubic feet of natural gas and 1.7 billion barrels of crude oil, worth around $400 billion.
The government in Nicosia has always based plans for the future on this projected income, so the idea of raising money based on future natural gas revenues as a means to alleviate some of the pressure caused by the immense debt that the island nation found itself in, was out of the question.
Natural gas production is not expected until around 2018 or 2019, and Cyprus refused to use any discounted future valuations to raise money in the present, not wishing to run the risk of selling their future for far less than it might be worth.
After the first bailout plan offered by the EU was rejected, however, a viable option that was considered was to accept direct financial assistance from Russia in return for the rights to explore and develop Cyprus’s natural gas.
This worried the EU who had, for a long time, been hoping that Cyprus’s natural gas would offer genuine relief from an almost complete reliance on Russian exports.
Luckily the deal with Russia never really materialised, and, possibly motivated by the fear that Russia could get hold of the gas reserves, Europe was able to agree a deal with Cyprus, leaving all natural gas reserves completely untouched.
Unfortunately analysts are predicting that this bailout plan will be just the first step on the road to recovery, and the security of the natural gas reserves may be threatened again in the future as Nicosia looks for other methods to raise capital.