GARETH M. WINROW 19 September 2014
Much of the increased trade is in effect being conducted under the radar. The construction of a major gas pipeline, on the other hand, would definitely not escape public attention.
In a recent speech in Ankara, introducing the Mediterranean Energy Perspectives – Turkey Report, Turkish Energy Minister Taner Yildiz announced that no energy projects with Israel would be pursued until there was permanent peace in the region. The minister noted that Turkey never talked about the economic feasibility of a project without first considering its political feasibility. Ankara had repeatedly condemned Israel for its actions in the renewed conflict in Gaza in the summer of 2014. The latest comments made by the Turkish Energy Minister may lead to the collapse of the proposed Israel-Turkey gas pipeline project linking Israel’s Leviathan gas field with the Turkish port of Ceyhan. Speaking earlier on 4 August, Yildiz had declared that without a ceasefire and stability in the region “the blood of innocent infants and mothers” and not gas would flow through the pipeline.
Hopes and expectations have been raised that the discovery of considerable gas reserves in Cypriot and Israeli offshore fields in the eastern Mediterranean would contribute to peace and stability in the area. Aykan Erdemir, an opposition deputy in the Turkish parliament, has referred to a possible gas pipeline connecting Israeli and also possibly Cypriot fields with Turkey as a “peace pipeline” which would help resolve the Cyprus problem and facilitate Turkey’s entry to the European Union (EU). In practice, it would seem that this optimism is misplaced. Even though an Israel-Turkey gas pipeline would be commercially viable and has the backing of powerful business lobbies, political opposition in Turkey, Israel and also Cyprus appears to be blocking the realisation of the energy project.
Israel’s huge Leviathan gas field, situated 130 kilometres west of the port of Haifa, has estimated reserves of 620 billion cubic metres (bcm). The American company Noble Energy is the operator of the field working together with Israeli partners. The aim is to commence production at the field by late 2017. Following a decision made by the Israeli cabinet in June 2013, 40 per cent of gas produced at the field may be exported. The first phase of development of the field is expected to cost $6 billion. A November 2014 deadline has been setby the Israeli government for development plans to be submitted by the companies working at Leviathan. The Netanyahu administration will be looking for details with regard to long-term gas sales agreements which would help fund production. The failure to produce a comprehensive development plan may lead to delays. Given recent events, it does not seem possible that the partners working at Leviathan will be able to include definite plans by the November 2014 deadline for the construction of a gas pipeline connecting the field with Ceyhan.
In March 2014 it was reported that two Turkish companies, Zorlu Holding and Turcas Petrol, had participated in a tender for the possible construction of a 7-10 bcm/y gas pipeline to link Leviathan with the Turkish mainland. The proposed 500 kilometre pipeline would cost about $3.5 billion. Zorlu Holding has stakes in several power plants in Israel and its chairman, Ahmet Nazif Zorlu, is known to have close links with the governing Justice and Freedom Party (AKP) in Turkey. Turcas Petrol had submitted a joint bid with the German energy company RWE. In April 2014 Turcas Petrol had notified the Istanbul Stock Exchange that it had initiated non-binding talks with Enerjisa (a joint venture of the powerful Sabanci Group in Turkey and the German energy utility E.ON) to buy gas produced at Leviathan for sale on the Turkish market. Influential Turkish and German energy businesses have thus expressed definite interest in the proposed Israel-Turkey gas pipeline and are lobbying for it. However, in spite of this interest, there have apparently been no further developments with regard to the tender for the pipeline’s construction.
It seems that the further deterioration in Turkish-Israeli relations in recent months is responsible for the lack of progress on the proposed gas pipeline. A deal had appeared to be in the making between Ankara and Jerusalem over the amount to be paid to a fund to compensate the families of the victims of the Israeli commando raid on the Mavi Marmara – a vessel which had attempted to break the naval blockade of Gaza in May 2010. Under American pressure Prime Minister Netanyahu had earlier expressed his regret for the lives lost in the boarding of the Mavi Marmara. A possible rapprochement between Israel and Turkey, though, is no longer on the cards following Ankara’s harsh condemnation of the most recent Israeli assault against Hamas in the Gaza Strip.
The Israeli and Cypriot governments have supported plans to construct the East Mediterranean Gas Pipeline. This would entail the laying of an underwater pipeline connecting Cyprus with Crete and then with the Greek mainland which could transport 8 bcm/y of Cypriot and Israeli gas to Europe. In October 2013 the European Commission designated the planned pipeline a project of common interest which could be eligible for financial support. A link could be made with the envisaged IGI-Poseidon pipeline to enable gas to be delivered to Italy via the Ionian Sea. However, because of the high costs - $20-30 billion – and the technical challenges of laying a pipeline in very deep waters, the East Mediterranean Gas pipeline will probably not be built.
The administration in Nicosia has also backed plans to construct a liquefied natural gas (LNG) terminal at Vasilikos in Cyprus. This facility could process gas produced from Cypriot and Israeli gas fields in the eastern Mediterranean which could then be shipped out by tanker to markets in Europe and Asia. This would be another expensive option – about $10 billion to liquefy 14 bcm each year - and is appearing less commercially attractive as gas prices are falling on world markets. The Israelis are preferring other options for the possible export of gas from the Leviathan field.
In January 2014 a deal was concluded with the Palestine Power Generation Company (PPGC) to export annually 4.75 bcm of gas from Leviathan over a twenty year period to a future power in Jenin in the West Bank. In September 2014 a letter of intent was signed with Jordan’s National Electric Power Company (NEPCO) for the sale of 45 bcm of gas from Leviathan over a fifteen year period. A final gas purchase and sales agreement is expected to be completed before the end of the year. Also, a non-binding agreement with BG was signed in June 2014. This would entail the delivery by a new underwater pipeline of 7 bcm per annum over a fifteen year period from the Leviathan field to the currently idle LNG plant at Idku in Egypt. Once processed at the BG-run Egyptian liquefaction facility, the Israeli gas could then be sent by tanker to outside markets.
Even if the agreements with NEPCO and BG are finalised, there would still be enough gas produced at Leviathan to fill the proposed Israel-Turkey pipeline. In spite of worsening political relations, trade turnover between Israel and Turkeyhas increased from $3.5 billion in 2012 to $4.9 billion in 2013. However, it is extremely unlikely that the prospects of further expanding commercial ties will enable the Turkish and Israeli governments in the foreseeable future to put aside their differences and agree to the construction of the gas pipeline. Much of the increased trade is in effect being conducted under the radar. The construction of a major gas pipeline, on the other hand, would definitely not escape public attention. Given the probable continuing tensions between Ankara and Jerusalem over Gaza, AKP officials would find it extremely difficult to convince their supporters that the time is opportune to proceed with such a large scale energy project.
In the current political climate the Netanyahu administration would also oppose the pipeline’s construction. Gas is seen as a strategic good in Israel. This was clearly evident in the lively debates over how much of Israel’s gas production should be allocated to the domestic market and what volumes could be exported. Israeli officials will thus be extremely reluctant to commit large volumes of gas to a state which is seen as hostile.
Moreover, without a resolution of the Cyprus problem, the government in Nicosia would also continue to block the construction of an Israel-Turkey gas pipeline which would have to be routed through the exclusive economic zone of Cyprus to avoid Syrian waters. The announcement of the resumption of talks between the Greek and Turkish Cypriot communities over the future of the divided island was greeted with much fanfare in February 2014, but negotiations remain stalled and there is little prospect of any immediate progress. Without permission from Nicosia, the proposed gas pipeline is a non-starter.
Energy companies like to assume that the commercial viability of a project will provide sufficient grounds for them to convince governments to lend support to particular projects. This does not appear to be the case with regard to the prospects for an Israel-Turkey gas pipeline. This is in spite of the fact that Turkey is seeking to diversify its gas imports in order to avoid increasing energy dependence on Russia – an issue of more pressing concern given the tensions over Ukraine. The channelling of Israeli gas to the Turkish mainland could also in effect enable more gas from other sources to be transported to Europe via Turkish territory and make Turkey an increasingly important gas transit state – a goal for policymakers in Ankara.
Ironically, perhaps, the Palestinians, Jordanians and Egyptians appear more willing to receive gas from the Leviathan field in spite of escalating tensions between Israel and Hamas over Gaza. Local interest in exploiting Israeli gas for domestic consumption or re-export may therefore contribute to regional stability in the longer term. A “peace pipeline” between Israel and Turkey may not be realised, but gas reserves in the eastern Mediterranean may still play an important role in enabling Israel to improve relations with its Arab neighbours.
The November 2014 deadline for the submission of plans for the development of the Leviathan field may have to be extended by the Israeli government in order for the partners working at Leviathan to tie up deals with NEPCO and BG. This would enable more time for additional gas volumes from the Leviathan field to be committed to outside markets. However, given the continuing problems in Israeli-Turkish relations and the stalemate over Cyprus, the construction of a gas pipeline from the Leviathan field to Ceyhan in the foreseeable future seems exceedingly unlikely.
Link to source: https://www.opendemocracy.net/arab-awakening/gareth-m-winrow/is-time-running-out-for-proposed-israelturkey-gas-pipeline
