Israel, Turkey step up gas exports negotiations

20 February 2014 /İSTANBUL, TODAY’S ZAMAN – Turkey could emerge as a potential transfer hub for Europe and a key customer of Israeli gas starting from 2017 provided Ankara and Tel Aviv agree on terms, the Turkish media speculated on Wednesday.

A possible natural gas pipeline from Israel’s recently discovered huge east Mediterranean Leviathan gas field to Turkey has been discussed for more than a year now and the media is reporting that Israel is now taking some bold steps in this regard. Turkey’s Vatan daily said on Wednesday that representatives from US-based Noble Energy and Israel’s Delek Group, two of Leviathan’s largest stakeholders, are in talks with four Turkish energy firms for a possible deal in the construction of a natural gas pipeline via Turkey to Europe. Vatan said the Leviathan shareholders are in negotiations with Turkey’s Turcas, Zorlu, Çalık and Enka Enerji for a pipeline that would carry 8 billion cubic meters (bcm) of Israeli gas via Turkey starting from 2017, the year Israel expects to start extracting gas.

Leviathan is estimated to hold about 19 trillion cubic feet (540 bcm) of natural gas, enough to supply all of Europe for over a year. The field is being developed by the US-based Noble Energy, which will remain the project’s lead partner with a 30 percent stake, while the other groups involved — Israel’s Delek Group, Avner Oil Exploration and Ratio Oil Exploration — will each sell a quarter of their stakes to Australian LNG experts Woodside.

A diplomatic rapprochement between Turkey and Israel since last year — a first since the 2010 bloody Mavi Marmara attack — has slowly been having an effect on mutual economic relations where energy deals play a great role. Israeli officials have not denied that the country is mulling over building a 500-kilometer-long pipeline to carry its natural gas to Turkey and then to the large European market.

Another option for the project would be to build a joint liquefied natural gas (LNG) terminal with Greek Cyprus, which has also found large untapped gas reserves, and which could be jointly developed with Israel as they are close to the Leviathan field.

Although an LNG terminal would allow access to global markets, the cheaper option of a pipeline to Turkey and the Palestinian Authority has recently gained traction. The pipeline to Turkey is estimated to cost $2.5 billion to construct, a much cheaper option when compared to the LNG terminal, estimated at $15 billion.Vatan quoted Turkish energy company Turcas CEO Batu Aksoy as saying that around 8 billion bcm of natural gas could easily be transported to world markets via Turkey while the rest can be exported in the form of LNG. Aksoy says Israeli exports via Turkey could begin in 2017.

Despite the prospect of lucrative gas exports, analysts say Leviathan would initially serve Israel’s domestic market. Leviathan is projected to be initially developed as a domestic gas project with gross production of 800 million cubic feet per day.

“Turkey remains the safest energy corridor for Israel to sell its gas to global markets. … We are talking about something that is more than a pipeline, something that can be a remedy for lingering political clashes with Israel and its neighbors,” Aksoy commented. Turkey buys 83 percent of its natural gas demand from Russia, Iran and Azerbaijan and pays $442 per 1,000 bcm from these suppliers. The price of 1,000 bcm of natural gas from Israel, however, could be as cheap as $350, observers argue. Market experts have been warning that Israel will have to act fast before a global race to develop new gas fields as soon as possible pull down prices and threaten return of investments. The US and Australia are preparing to become top LNG exporters while Mozambique and East Africa also hope to develop their newly found huge offshore gas reserves within the coming years.