After its most traumatic year since the 1974 Turkish military invasion, Cyprus is bubbling with excitement at the prospect of offshore gas riches so abundant that they will guarantee prosperity for generations to come.
Not one cubic metre of recoverable gas has yet been found in the Aphrodite field off Cyprus’s southern coast where Noble Energy, a Texan firm, began exploratory drilling last month.
But for a small country which lost more than half its electricity supply in July when an explosion destroyed its largest power station, and which turned to Russia this month for a €2.5bn emergency loan to protect its public finances, visions of stupendous energy wealth are irresistibly attractive.
As a result, the government of Cyprus is already examining the multibillion-dollar sovereign wealth funds of Norway and Qatar for ideas on how to operate an investment fund of its own, if and when the cash comes rolling in. “There’s a climate of euphoria in Cyprus,” confesses Praxoula Antoniadou, the island state’s industry minister.
The eastern Mediterranean caught the energy world’s attention last year when Noble announced that the Leviathan field, adjacent to Aphrodite and lying in Israeli waters, contained reserves so large that they held the potential to turn Israel into a gas-exporting nation.
According to the US Geological Survey, the Levant Basin, adjoining Cyprus, Gaza, Israel, Lebanon and Syria, may contain as much as 122,000bn cubic feet of recoverable gas, equivalent to 20bn barrels of oil.
The first indications of hydrocarbon reserves in what Cyprus terms its “exclusive economic zone” are expected in early to mid-December, Ms Antoniadou told a conference this month in the coastal resort of Limassol.
She promised that any wealth would be shared fairly between the Greek Cypriot population of the island’s south and the Turkish Cypriots of the north, whose breakaway state is recognised by no country other than Turkey.
Turkey itself takes the view that Cyprus should not be drilling for gas until negotiators settle the long-term future of the island’s two communities.
The persistent tensions that surround the island’s division are not, however, the only question on the minds of Cyprus’s political leaders as they prepare for a possible gas bonanza.
For a country with no experience of managing extensive natural resources, it is equally important to work out how to exploit the wealth – if it is there – in a sustainable fashion.
At the Limassol conference, Hans Jochum Horn, a Norwegian businessman with deep knowledge of the oil and gas sectors of Norway and Russia, had some blunt advice for Cyprus’s leaders.
“You have no time. You have to get the key issues on the table very soon and take some quick decisions. If you set the right framework at the beginning, you will not squander the riches,” Mr Horn said.
Cyprus may choose to create a national energy champion, as Norway did when it established Statoil in 1972, he observed. “If so, the company should be run like a private company. It should have independent directors and should be quoted on a major stock exchange.”
Mr Horn, who is deputy chief executive officer of the Renaissance Group, an investment company that specialises in emerging markets, said that if Cyprus set up a wealth fund, “everything you earn offshore should go into the fund and only a little bit should trickle out [for current expenditure]”.
Norway made a mistake in 2002 by deciding to take out 4 per cent of its fund’s annual revenues for current spending, Mr Horn said. A limit of 2 per cent a year should have been set.
Amit Mor, an Israeli specialist who runs Eco Energy, a consulting and investment firm, told the conference that “a transparent bidding and licence process” was paramount for the long-term success of a future Cypriot energy sector.
He added: “The resources belong to future generations. It’s very important for Cyprus to internalise this lesson.”