LONDON — If there are any bright spots in the gloom surrounding the economy of Cyprus, one place to look would be about 170 kilometers south of the coastal city of Limassol. There, about 1,700 meters below the surface of the Mediterranean Sea, is a potentially lucrative natural gas field called Aphrodite.
Noble Energy, the Houston-based company that found Aphrodite in 2011, has drilled only a single exploratory well in the mile-deep water 100 miles south of the island. But based on that early look, the company estimates that the field contains 142 billion to 227 billion cubic meters, or 5 trillion to 8 trillion cubic feet, of gas. It is a significant find — potentially worth $45 billion or more at current prices, if it proves extractable. That would be enough to supply Cyprus’s domestic needs for years and turn the debt-strapped country into an energy exporter.
“I am certain that gas will be the answer to our future,” said Charles Ellinas, chief executive of the Cyprus National Hydrocarbons Co., a state concern that was recently formed to help spearhead development of a Cypriot natural gas industry.
Cyprus has the potential to become one of the hubs of an eastern Mediterranean region that could become an important source of natural gas for Europe, at a time when political unrest is making supplies from North Africa uncertain.
Over the past two decades an Israeli-American-led group of small and midsize oil companies has made a series of big discoveries in what is known as the Levantine basin, an area loosely bounded by Cyprus, Syria, Lebanon, Israel and Egypt. Israel, which has begun gradually tapping the gas, began production in a big offshore field called Tamar on March 30.
Gideon Tadmor is the chairman of Delek Drilling and chief executive of Avner Oil, affiliates of Delek Group, an Israeli company that has led exploration in the area since the 1990s. He said the Israeli oil explorers had taken their cues from successful previous exploration to the south, in waters off Egypt. “We had a notion there was a good reason for the geological play to extend beyond the geopolitical borders,” Mr. Tadmor said.
While it is still hard to predict how large an exporter the eastern Mediterranean might eventually become, it is attracting industry attention well beyond the region.
“If you look at new sources of supply in the eastern Mediterranean, with what we’ve seen in Cyprus, in Israel and other places — you’ve got to say those will probably be the real competition,” said Al Cook, a vice president on the giant Shah Deniz pipeline project that BP is leading in Azerbaijan, which is meant to transport natural gas to Europe.
But enabling the Mediterranean to approach its energy potential will require navigating potentially treacherous politics. Any export deals by the Greek Cypriot government in Nicosia will risk the ire of Turkey, which warned during recent bailout negotiations that the Turkish Cypriot northern part of the island should share in any exploitation of natural resources. Cyprus has been divided since a Turkish invasion in 1974.
Meanwhile, Israel, where larger gas finds have been made by Noble and Delek, will also need to figure out what export routes make geopolitical and economic sense.
The priority for the Israeli government will be to make sure the country, which has long been dependent on imported fuel, is assured of sufficient domestic supplies. Only then would exports be authorized.
When the government does choose export routes for its gas — a decision expected soon — security and political considerations will probably take precedence. While pipelines might be less expensive, Israel is wary of sending gas north through Syria and Lebanon, both of which may have offshore gas deposits of their own.
Mr. Tadmor said many options were on the table for Israel as the industry awaited a decision from Prime Minister Benjamin Netanyahu’s new government on whether to permit exports and in what form.
“It could be L.N.G. onshore or offshore and also piped gas solutions like Jordan or even Turkey,” he said. L.N.G. is liquefied natural gas, which can be carried on special tanker ships.
The recent thaw between Israel and Turkey brokered by President Barack Obama has made energy cooperation between the two countries more likely. Sending gas to Egypt, which has been running short of late, is also possible, analysts say.
Also under consideration is piping some Israeli gas to a Cypriot L.N.G. processing plant — if one is built. Some of the companies are involved in both Cyprus and Israel. And the Aphrodite field may extend into Israeli waters, analysts say, which would be further reason for the countries to collaborate.
Mainly, it is the lure of substantial amounts of natural gas within easy reach of Europe, a huge consumer and importer of the fuel for industry and power generation, that has drawn some major fossil-fuels players to Cyprus. In January, Eni of Italy, with the South Korean giant Kogas as a 20 percent partner, signed an exploration deal for a huge swath of sea bottom off Cyprus. France’s Total signed a similar agreement with Cyprus a month later.
“It is promising for Cyprus that companies the caliber of Eni and Total are getting involved — that is an early sign of confidence,” said Catherine Hunter, an analyst at the energy research firm IHS in London.
As for Cyprus, it is uncertain how much the country’s gas can do for its besieged economy, and how quickly. In one big concession in its recently arranged bailout, the troika of international lenders — the International Monetary Fund, the European Central Bank and the European Commission — agreed that the country’s gas reserves would remain under Cypriot jurisdiction.
Noble and its partners are preparing to drill a second well to help confirm the size of Aphrodite. So far, the volumes of gas that the companies think they have discovered, while suggesting a large find, are not far above the minimum analysts say would justify building a multibillion-dollar facility to liquefy the gas for transport by ship.
Mr. Ellinas says that L.N.G. is the preferred option for exporting the gas but that the big liquefaction plant he envisions for Vassilikos, an industrial site on the south coast, would cost $6 billion for the first of what might eventually be three export units.
But if the costs can be justified, such a plant would provide “flexibility, security and everything else,” he said. “We can export to Europe and everywhere else. If you have a pipeline and gas prices go down you are stuck.”
Construction of an L.N.G. plant would take four to five years, once a final investment decision was made, which could stretch the finances of the Cypriot government and the balance sheets of the companies that hold the leases for the Aphrodite field.
To put the potential construction bill into perspective, Cyprus’s entire economy — before the crash, at least — was only about €18 billion, or $23 billion, and the country is counting on its recently arranged €10 billion bailout to prevent more of its banks from collapsing.
Noble, for its part, has a relatively modest annual capital budget of about $4 billion, and has commitments elsewhere, including Israel.
One banker, who requested anonymity because of the sensitivity of the matter, said the costs of developing Cyprus’s deepwater gas would probably be so high that an L.N.G. project would be only marginally profitable for the government at current gas prices, unless more gas was found. Mr. Ellinas, though, predicted that much more would be discovered.
Other options include a less-expensive floating L.N.G. facility. The most affordable approach might be an offshore pipeline to Turkey. But no matter how grim its financial predicament, the government of Cyprus may have little interest in supplying its longtime enemy.
“A subsea pipeline is a lot cheaper than an L.N.G. terminal, but a no-go politically,” said Laura El-Katiri, a research fellow at the Oxford Institute for Energy Studies.
Of course, Cyprus’s financial meltdown could lead to new attitudes. The country could come under pressure from its international creditors to adopt quicker ways to turn gas into cash — even if it meant a Turkish pipeline. And the role of Mr. Ellinas’s company, which was created by the previous Cypriot government, voted out of office in February, may come under review, said Ms. Hunter, of IHS.
L.N.G. might be the preferred choice of the Israelis. A liquefaction plant would be easier to guard than a long pipeline, which could be cut. Or if Cyprus built a plant, Israel might want to shunt some gas to that facility, to gain economies of scale. Delek is already a minority partner in Aphrodite.
“Setting up an export facility in an area under Israeli control appears to be the best alternative,” an Israeli inter-ministerial committee said in September. The committee also recommended that a major international company be brought in to orchestrate development of the gas industry.
The offshore Tamar field, which began piping gas to the Israeli domestic market in late March, was developed by a consortium led by Noble and Delek. Tamar alone holds enough gas to power the Israeli economy for many years.
Now the two companies are working on plans for exploiting a much bigger field near Cypriot waters called Leviathan, which is double or triple the size of estimates for Aphrodite.
In December, Noble and its Israeli partners brought in an experienced L.N.G. player by reaching an agreement in principle with Woodside Petroleum, a company that operates a half-dozen L.N.G. plants in Australia. Woodside said at the time that the pact, which gave it a 30 percent stake in Leviathan, could lead to “a key role in the potential development of a liquefied natural gas industry in Israel. ”
Mr. Ellinas, of Cyprus, said he hoped the Israelis would use the Cypriot L.N.G. plant and would hook Leviathan into it. That solution would certainly be one way to reduce costs. But in the end, each country may want to keep its big gas-processing investments close to home. In a tough neighborhood, control may trump economics.
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