Last December, soon after the downing of the Russian jet, a flurry of diplomatic activity started that has now produced a positive result enabling Israel and Turkey to resume diplomatic relations. A key factor in this is the potential for Israel to supply Turkey with gas.
In a parallel, but related, development Turkey’s President Recep Tayyip Erdogan sent a letter of apology to Russia’s President Vladimir Putin for the shooting-down of the Russian jet, opening the way for rapprochement between the two countries. This too has energy implications.
Turkey’s energy security
A consequence of Turkey’s confrontation with Russia is a threat to its gas supplies, which are heavily dependent on imports from Russia. Turkey needs to secure alternative supplies of gas. Israel needs to export its gas. Any gas from Israel to Turkey has to go through Cyprus Exclusive Economic Zone (EEZ), putting Cyprus in the middle.
A deal with Turkey opens the way to export Leviathan gas. That could be a success for Netanyahu, who expended considerable political capital unlocking its development, and it could make Leviathan commercially viable. Rapprochement with Israel and solution of the Cyprus problem can enable Turkey to be woven into and benefit from the deve-loping East Med regional geopolitical and energy network.
But this is not without risks. What happens if there is another flare-up between Israel and Gaza? How would Turkey react? And in Israel there is now a new factor called Lieberman. And then what is Russia going to do? These are issues that led to Turkey revising its future energy strategy.
Turkey’s energy mix
Not surprisingly Turkey’s new energy strategy is aiming for energy mix diversification, with natural gas demand being revised downwards through increasing use of coal, hydro, renewables and LNG imports. In fact hydro-power plants are taking the lion’s share in installed power capacity with 35%. In addition, Turkey is planning to double its coal-power capacity in four years. Depending on how these develop and with no threats to existing Russian gas supplies, especially after the latest developments, its need for East Med gas may no longer be an urgent priority.
Initial indications from the first three months of 2016 are that this new strategy appears to be working. The share of natural gas in Turkey’s power generation is declining, down to 33% during this period. This is the lowest it has been over the last seven years. It was compensated by increased use of coal, lignite and hydro-power, which continued to rise.
Nevertheless gas still plays a major role in Turkey’s energy mix. Turkey’s gas consumption was 48.7 billion cubic metresin 2014, with about 55% supplied by Russia. Turkey’s 14 bcm/year western route gas supply contract with Gazprom, through Ukraine, will be up for renewal in 2021 and the 16 bcm/y Black Sea route contract in 2025. In total over 36bcm/y contracts will be up for renewal between 2021 and 2025.
And on top of these Turkey may need to find another 15-20 bcm/y by 2025 to cover its growing gas needs, expected to reach 65-70 bcm/y by then. There is the additional risk that Gazprom may curtail gas supplies through Ukraine by 2019 if it succeeds and builds Nord Stream 2.
It is this growing gas demand that makes Turkey vulnerable to external gas suppliers and it is perhaps one of the reasons for the latest move of rapprochement with Russia. Its policy to increase use of coal and hydro in power generation may partially alleviate its dependence on gas, but unlikely to replace it.
As a result, Turkey needs to ensure diversity and security of its gas supplies.
Gas supply options
A key element of Turkey’s evolving energy policy is to limit dependence on any one country to less than 50%. As a result Turkey is investigating options for more LNG imports, eg Qatar or even the US, and new pipelines, such as Azerbaijan, Kurdistan, East Med, Iran, Turkmenistan.
In fact, late last year Genel offered to build a pipeline to supply 10 bcm/y from Kurdistan to Turkey. But this is subject to security risks, especially as a result of the current conflict with PKK.
Azerbaijan also has difficulties increasing its gas supply to Turkey beyond the 6 bcm/y committed to as part of the Southern Gas Corridor deal and Turkmenistan is a remote possibility. At present Iran is concentrating on satisfying its increasing domestic demand. As a result, provided the politics and ti-ming are right, supply of gas from the East Med is an attractive option.
East Med gas to Turkey
With diplomatic relations being re-established with Israel this now becomes possible.
Timing is also right as Israel has just recently put into place its gas regulatory framework opening the way for the development of its gas-fields and primarily Leviathan. In fact Noble has just been awarded a $150-million contract to proceed with the front-end engineering design (FEED) design. But for the project to reach final investment decision (FID), it requires to secure signed gas sales agreements. With exports to Egypt now less likely, Turkey is perhaps the only serious option left.
In fact a tender was issued by Noble in 2014 for 8-10 bcm/y gas sales to Turkey and it attracted major interest from Turkish companies. This also called for the successful bidder to build the pipeline from Leviathan to Turkey.
Implications for Cyprus
Gas development can serve as an incentive to Turkey, but also to Greek and Turkish Cypriots, for solution of the Cyprus problem, enabling the Israel-Turkey gas deal and development of Cyprus’ Aphrodite field.
Arguably the best export prospect is delivery of Leviathan gas by pipeline to Turkey. Failing this, Israel can still export gas to Turkey by compressed natural gas (CNG).
With limited export options, if sales to Turkey cannot be secured, then the risk for Israel is that Leviathan gas may well stay in the ground for a long time. This puts pressure on Israel to progress gas sales to Turkey as a priority issue.
The question then is: even though Israel has given assurances to Cyprus that rapprochement with Turkey will not affect Cyprus adversely, would this stop such a project? Certainly, without solution of the Cyprus problem, Cyprus has made its opposition to such a project clear.
Should there be a decision to proceed with gas sales to Turkey, Cyprus may not be able to stop the construction of a pipeline through its EEZ. Both Cyprus and Turkey are signatories of the Energy Charter Treaty that establishes a framework for cross-border cooperation in the energy sector.
Article 79 of the United Nations Convention on the Law of the Sea (UNCLOS) also covers submarine pipelines. Through these, Cyprus has some powers to influence such a project, for example by raising environmental or pipeline routing concerns, but cannot stop it. It will be even more difficult if the ownership and construction of the pipeline is undertaken by Turkish companies.
But let us be clear. No decisions have yet been made either in Israel or in Turkey to proceed with such a project and indeed there are challenges to overcome in both countries.
However, these are dilemmas that need careful consideration and advance planning. The best way forward is for Cypriots to reach a settlement soon and for Turkey to facilitate this in the interests of Cyprus and the region.
Dr. Charles Ellinas is a non-resident Senior Fellow, Eurasian Energy Futures Initiative, Atlantic Council
SOURCE
In a parallel, but related, development Turkey’s President Recep Tayyip Erdogan sent a letter of apology to Russia’s President Vladimir Putin for the shooting-down of the Russian jet, opening the way for rapprochement between the two countries. This too has energy implications.
Turkey’s energy security
A consequence of Turkey’s confrontation with Russia is a threat to its gas supplies, which are heavily dependent on imports from Russia. Turkey needs to secure alternative supplies of gas. Israel needs to export its gas. Any gas from Israel to Turkey has to go through Cyprus Exclusive Economic Zone (EEZ), putting Cyprus in the middle.
A deal with Turkey opens the way to export Leviathan gas. That could be a success for Netanyahu, who expended considerable political capital unlocking its development, and it could make Leviathan commercially viable. Rapprochement with Israel and solution of the Cyprus problem can enable Turkey to be woven into and benefit from the deve-loping East Med regional geopolitical and energy network.
But this is not without risks. What happens if there is another flare-up between Israel and Gaza? How would Turkey react? And in Israel there is now a new factor called Lieberman. And then what is Russia going to do? These are issues that led to Turkey revising its future energy strategy.
Turkey’s energy mix
Not surprisingly Turkey’s new energy strategy is aiming for energy mix diversification, with natural gas demand being revised downwards through increasing use of coal, hydro, renewables and LNG imports. In fact hydro-power plants are taking the lion’s share in installed power capacity with 35%. In addition, Turkey is planning to double its coal-power capacity in four years. Depending on how these develop and with no threats to existing Russian gas supplies, especially after the latest developments, its need for East Med gas may no longer be an urgent priority.
Initial indications from the first three months of 2016 are that this new strategy appears to be working. The share of natural gas in Turkey’s power generation is declining, down to 33% during this period. This is the lowest it has been over the last seven years. It was compensated by increased use of coal, lignite and hydro-power, which continued to rise.
Nevertheless gas still plays a major role in Turkey’s energy mix. Turkey’s gas consumption was 48.7 billion cubic metresin 2014, with about 55% supplied by Russia. Turkey’s 14 bcm/year western route gas supply contract with Gazprom, through Ukraine, will be up for renewal in 2021 and the 16 bcm/y Black Sea route contract in 2025. In total over 36bcm/y contracts will be up for renewal between 2021 and 2025.
And on top of these Turkey may need to find another 15-20 bcm/y by 2025 to cover its growing gas needs, expected to reach 65-70 bcm/y by then. There is the additional risk that Gazprom may curtail gas supplies through Ukraine by 2019 if it succeeds and builds Nord Stream 2.
It is this growing gas demand that makes Turkey vulnerable to external gas suppliers and it is perhaps one of the reasons for the latest move of rapprochement with Russia. Its policy to increase use of coal and hydro in power generation may partially alleviate its dependence on gas, but unlikely to replace it.
As a result, Turkey needs to ensure diversity and security of its gas supplies.
Gas supply options
A key element of Turkey’s evolving energy policy is to limit dependence on any one country to less than 50%. As a result Turkey is investigating options for more LNG imports, eg Qatar or even the US, and new pipelines, such as Azerbaijan, Kurdistan, East Med, Iran, Turkmenistan.
In fact, late last year Genel offered to build a pipeline to supply 10 bcm/y from Kurdistan to Turkey. But this is subject to security risks, especially as a result of the current conflict with PKK.
Azerbaijan also has difficulties increasing its gas supply to Turkey beyond the 6 bcm/y committed to as part of the Southern Gas Corridor deal and Turkmenistan is a remote possibility. At present Iran is concentrating on satisfying its increasing domestic demand. As a result, provided the politics and ti-ming are right, supply of gas from the East Med is an attractive option.
East Med gas to Turkey
With diplomatic relations being re-established with Israel this now becomes possible.
Timing is also right as Israel has just recently put into place its gas regulatory framework opening the way for the development of its gas-fields and primarily Leviathan. In fact Noble has just been awarded a $150-million contract to proceed with the front-end engineering design (FEED) design. But for the project to reach final investment decision (FID), it requires to secure signed gas sales agreements. With exports to Egypt now less likely, Turkey is perhaps the only serious option left.
In fact a tender was issued by Noble in 2014 for 8-10 bcm/y gas sales to Turkey and it attracted major interest from Turkish companies. This also called for the successful bidder to build the pipeline from Leviathan to Turkey.
Implications for Cyprus
Gas development can serve as an incentive to Turkey, but also to Greek and Turkish Cypriots, for solution of the Cyprus problem, enabling the Israel-Turkey gas deal and development of Cyprus’ Aphrodite field.
Arguably the best export prospect is delivery of Leviathan gas by pipeline to Turkey. Failing this, Israel can still export gas to Turkey by compressed natural gas (CNG).
With limited export options, if sales to Turkey cannot be secured, then the risk for Israel is that Leviathan gas may well stay in the ground for a long time. This puts pressure on Israel to progress gas sales to Turkey as a priority issue.
The question then is: even though Israel has given assurances to Cyprus that rapprochement with Turkey will not affect Cyprus adversely, would this stop such a project? Certainly, without solution of the Cyprus problem, Cyprus has made its opposition to such a project clear.
Should there be a decision to proceed with gas sales to Turkey, Cyprus may not be able to stop the construction of a pipeline through its EEZ. Both Cyprus and Turkey are signatories of the Energy Charter Treaty that establishes a framework for cross-border cooperation in the energy sector.
Article 79 of the United Nations Convention on the Law of the Sea (UNCLOS) also covers submarine pipelines. Through these, Cyprus has some powers to influence such a project, for example by raising environmental or pipeline routing concerns, but cannot stop it. It will be even more difficult if the ownership and construction of the pipeline is undertaken by Turkish companies.
But let us be clear. No decisions have yet been made either in Israel or in Turkey to proceed with such a project and indeed there are challenges to overcome in both countries.
However, these are dilemmas that need careful consideration and advance planning. The best way forward is for Cypriots to reach a settlement soon and for Turkey to facilitate this in the interests of Cyprus and the region.
Dr. Charles Ellinas is a non-resident Senior Fellow, Eurasian Energy Futures Initiative, Atlantic Council
SOURCE
