As the 28 January tripartite summit between the leaders of Cyprus, Israel and Greece looms, rapid developments in the region make the case for closer cooperation between Nicosia and Tel Aviv more compelling.
With a solution of the Cyprus problem this year looking more likely, possible resumption of diplomatic relations between Israel and Turkey and the gas regulatory framework deal coming into force in Israel soon, the way will be opened for a number of gas developments in the region involving Leviathan and Aphrodite gas.
If, as a result, Israel exports gas to Turkey, it will go through a subsea pipeline from Leviathan through Cyprus EEZ to southern Turkey, a total distance of about 485km. It could then be possible for Aphrodite gas to be exported to Turkey by joining the same pipeline.
A pre-requisite of course is a solution of the Cyprus problem, and closer cooperation between Cyprus and Israel.
Gas developments in Israel
Since the end of 2014, when the Israeli Anti-trust Commissioner declared the Noble-Delek partnership a monopoly, Israel has gone through turmoil and introspection, the outcome of which is the ‘gas regulatory framework deal’. Even though it is the subject of court hearings early next month, it is expected to come into force soon.
In signing the deal, Israel’s Prime Minister Benjamin Netanyahu stressed the importance of engaging with Israel’s neighbours in the gas sector, particularly Cyprus, Egypt, Jordan, the Palestinian Authority and Turkey. He considers this important to Israel’s economy, security and foreign relations.
A key element of this deal is to unlock development of the 620bcm Leviathan gas-field and enable exports, as well as supply of gas to Israel for domestic consumption. Under the deal, Noble-Delek will have to meet a 2019 deadline for bringing Leviathan’s gas to the market. It is this deadline that gives urgency to the development of Leviathan.
With the possibility of gas exports to Egypt challenged by the low global and EU gas prices and, at least for now, blocked by the Egyptian government, Israel’s export options are limited.
Perhaps fortuitously for Israel, whilst all these developments were taking place, the Turkey-Russia relationship turned sour following the downing of bomber SU24, forcing Turkey to look for alternative supplies of gas. Turkey is also redirecting its foreign policy towards the West, which in addition to the US and the EU involves Israel. This could also be helped by the solution of the Cyprus problem.
Developments in Cyprus
The central plank of Cyprus gas export plans has been sales to Egypt for its domestic use as well as liquefaction at Idku and export as LNG to Europe.
However, these plans have always been challenged by the low global and EU gas prices, which are expected to go even lower by the end of this decade and stay low for even longer.
As a result, Cyprus may have to look elsewhere for gas exports. Solution of the Cyprus problem opens up the possibility of exports to Turkey, alongside Israel.
Cyprus and Israel have had a close relationship for a long time, and particularly between the two state leaders Anastasiades and Netanyahu. However, this has not been converted into success and development of specific energy projects on the ground. As a senior Israeli diplomat said to me on a number of occasions, if only we can get a single joint energy project off the ground many more will follow. But this has not happened. There have been opportunities but they were missed.
In a way, this inability to convert this special relationship into something more tangible is evidenced by the inability to reach a successful conclusion to the tortuous unitisation agreement negotiations over the last five years.
But now there are compelling reasons to take this relationship much closer. The serious prospect of a solution of the Cyprus problem, Turkey’s quest for alternative sources of gas as a result of its deteriorating relationship with its main gas-supplier Russia, and the deteriorating situation in Syria open up opportunities.
Normalisation of the Turkey-Israel relationship is now well advanced. The Foundation for Political, Economic and Social Research (SETA) in Washington, an influential think-tank closely associated with the Turkish government, said last week the ongoing regional turmoil has required regional actors to adjust their positions and adapt to the new realities on the ground. However, it also notes that Turkey and Israel still need an acceptable compromise over the Gaza blockade. SETA went on to say that the energy equation in the East Med cannot be considered without Turkey, who should not be seen as merely a gas transit country to Europe, given its own domestic needs for gas and its drive to reduce reliance on Russian and Iranian gas.
Even though Russia has not cut gas supplies to Turkey, its growing gas demand makes Turkey vulnerable. In addition, the 14bcm/y western route Russian gas supply contract will be up for renewal in 2021 and the 16bcm/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 would need to find another 20bcm by 2025 to cover its growing gas needs, expected to reach 65bcm/y by then. It is also currently paying high prices for its gas, about $15 per mmBTU to Iran, $12 to Russia, and $10 to Azerbaijan. Turkey will be looking to secure substantial quantities of gas over the next ten-years and, with its main gas supplier hostile, it is a challenge.
This perhaps was one of the reasons that led Turkish President Erdogan to say: “Israel is in need of a country like Turkey in the region. We have to admit that we also need Israel.”
A US think-tank, the Wilson Center in Washington, said that a possible reconciliation between Israel and Turkey would be a good sign for Cyprus, where both Greek and Turkish Cypriots are trying to reach a final solution.
Israel and Turkey have been in negotiations on a pipeline to sell Israeli gas to Turkey and possibly Europe through Turkey since 2014. About 8-10bcm could be consumed within Turkey, but additional volumes of Israeli and Cypriot gas could be exported to Europe through Turkey. Cyprus is expected to be an important player in this and any future energy projects in the East Med.
As former US Ambassador Matthew Bryza said “Comprehensive settlement of the Cyprus Question … is required for an Israel-Turkey gas pipeline to attract necessary financing, since no major bank or private equity fund is likely to press ahead with such a big project against the expressed will of an EU member-state like Cyprus.”
With these developments in mind, the forthcoming meetings of the leaders of Cyprus, Israel and Greece in Nicosia have particular importance. Cyprus and Israel should strengthen their relationship at all levels, starting with concluding the unitisation agreement.
SOURCE
