Cyprus gas
The Homer Ferrington gas drilling rig, operated by Noble Energy and drilling in an offshore block on concession from the Cypriot government, is seen in a reflection during President Demetris Christofias' visit in the east Mediterranean Reuters

While the discovery of huge natural gas reserves off the southern coast of Cyprus represent a financial windfall-in-waiting for the heavily indebted country, the challenges to monetise those resources are fraught with political and economic risk.

The huge gas fields, discovered in 2011 by the American company Noble Energy, span both Cyprus's and Israel's territorial waters. The 2011 discovery was estimated to be around 5 trillion cubic feet of natural gas within Cypriot territorial waters. Some officials estimate there is up to 60 trillion cubic feet of gas still to be discovered in Cyprus's waters, an amount that could drastically change he fortunes of the island's struggling economy.

Cyprus and Israel signed a statement of intent in June 2013 over the building of an onshore natural gas liquefaction terminal in Cyprus, to store fuel before onward transportation to Europe.

However, significant work on the next phase of development is yet to start. With the government plagued by public debt, Nicosia is struggling to provide financing for the project.

"The combined cost of the liquefaction plant and the offshore pipeline varies between $8bn and $10bn, of which Cyprus may decide to finance 51%. In this case, it is very unlikely that the nearly bankrupt island-state will be able to find the money," political scientist Dr Andreas Stergiou told Geopolitical Information Service (GIS).

The possibility of constructing a pipeline between Cyprus, Greece and Israel has been floated in recent months but the project would require serious diplomatic movement between Greece and Israel over the borders of their exclusive economic zones.

Moreover, a major challenge yet to be addressed is the dispute with Turkey over the gas discovery.

In theory, the discovery could provide a window for an historic breakthrough between Nicosia and Ankara. Cyprus remains split between Greek and Turkish communities in the south and north respectively, with the capital Nicosia divided by a demarcation line.

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Companies working on Israel's gas discovery have argued for the construction of a pipeline to Turkey, in order to raise revenues for the liquefaction terminal. Dr Stergiou told GIS that option remains unlikely.

"No serious politician in Cyprus would consider that, because it would mean indirectly recognising the northern portion of the island, occupied by Turkey, without any guarantee that the profits would actually go towards building a liquefaction plant," he said.

Meanwhile, the discovery could equally widen the diplomatic gulf between Ankara and Nicosia. Turkey has claimed the blocs of natural gas south of Cyprus as its own. It has threatened military force if drilling is carried out. While Ankara is yet to make good on that threat, the likelihood will increase as Cyprus gets closer to monetising the fields.