By Charles Ellinas
Israel and Turkey agreed last week to open discussions and examine building a gas pipeline to pump Israeli gas from Leviathan to Turkey and from there to Europe.
The meeting last week between Israeli Energy Minister Yuval Steinitz and Turkish Energy Minister Berat Albayrak in Istanbul, was the highest-level official meeting since the two countries normalised ties in June. The process to normalise relations was strongly backed by the US.
The crisis between the two countries erupted after Israel stormed a Gaza-bound Turkish aid ship, the Mavi-Marmara, in 2010. Until that time, Turkey had been Israel’s key ally in the Muslim world.
In June this year the two countries finally agreed to normalise their relationship, with the return of their Ambassadors to their posts later in the year.
The meeting in Istanbul
The meeting between the two ministers took place on the sidelines of the World Energy Congress in Istanbul, and it was a major turning point. Steinitz said: “What we decided is to establish immediately a dialogue between our two governments…in order to examine the possibility and the feasibility of such a project.”
He added that Israel “will also be glad to see Turkish companies involved in Israeli energy sector” including the exploration of gas fields and humanitarian aid to Gaza.
Mindful of regional sensitivities, he also said that Israel is building regional energy cooperation links with Jordan, Egypt, Cyprus and Greece, involving gas exports and pipelines, but stressed that “the Turkish option is very important.”
Both ministers expressed their views about the wider benefits to the region, stressing the role of the energy sector in solving regional problems and contributing to the stability and prosperity of the East Med.
Subsequently to the meeting, Steinitz described his visit as the start of economic benefits coming from diplomatic and political normalisation between Israel and Turkey. This was reconfirmed in a statement by the Turkish energy ministry adding that the two ministers had agreed “to establish dialogue on exporting natural gas.”
Stressing the importance Israel attached to this meeting, Steinitz said: “I am confident that most people are eager to see peace and stability in the region and good relations and economic cooperation between Turkey and Israel.”
Drivers behind this project
Turkey is highly dependent on Russia for its energy imports, about 55% of its gas. As a result, it is keen to diversify supplies and has kept a close eye on Israel’s own developing resources.
For its part, Israel is searching for energy partners to develop its Leviathan natural gas field in a bid to make it commercially viable.
In terms of exporting its gas, Turkey is the better option, making it also possible to transport Israeli gas to Europe, should that be commercially viable.
Israel has so far discovered close to 1000 bcm of natural gas and further exploration could raise this. Steinitz said “this is a lot of gas…much more than a little country like Israel can consume.” As a result, Israel is looking for export markets.
Following the abandonment in 2014 of its attempt to develop an LNG plant in Cyprus for exports to Europe and beyond, Israel has been in negotiations with Egypt. But despite a number of MoUs, nothing concrete has come out of these, not just because of politics but also because low gas prices challenge commercial viability.
Gas to Turkey is a different matter. Long-term gas import prices in Turkey are currently in the $6-$8/mmBTU range, which makes gas imports from Israel commercially viable. Noble and Delek may be expecting $4/mmBTU at the Leviathan FPSO. Even after adding about $2.50/mmBTU for the subsea pipeline cost, the total landed price is still within the range of gas prices in Turkey. And on top of this, it contributes to Turkey’s drive for diversification of supplies, following its recent spat with Russia, and its aspiration to become a regional hub.
Cemil Ertem, advisor to the Turkish president, confirmed that Turkey wants to connect Israeli gas supplies to the Southern Gas Corridor project (SGC).
However, exports from there to Europe through the SGC are another matter. On top of the above costs, there would be additional costs for a land pipeline to join the SGC and additional transport tariffs to get the gas to European destinations. These would make such gas prohibitively expensive in comparison to gas prices in Europe, which are down to $4/mmBTU.
In an era of plenty and peaking gas demand in Europe, it is difficult to see gas prices rising. As a result, the likelihood of Israel gas through the SGC finding gas buyers in Europe is low.
Turkey’s plans to become a regional gas trading hub and not just a transit country were made at last week’s World Energy Congress.
One of the requirements to become a regional hub is that Turkey should develop sufficient entries and exits of gas as well as capacity and diversification of supplies. Gas from Israel to Turkey and possibly exports from there to Europe would contribute to this process.
The agreement with Russia last week to proceed with TurkStream is another major boost to this aspiration. And not to be left behind, Iran offered more gas to Turkey.
There remains huge potential for tension between the two sides, with Erdogan seeing himself as a champion of the Palestinian cause and being a strong backer of Hamas. What would happen to gas going through such a pipeline should hostilities between Israel and Hamas flare-up at some future date?
Implications for Cyprus
The limelight went to Mustafa Akinci who attended and addressed the World Energy Congress. He supported an East Med-to-Turkey pipeline as a means to bring peace to Cyprus.
With solution of the Cyprus problem, there would be an option for Aphrodite gas to join such a pipeline, should Turkey wish to purchase more than the 8-10 bcm gas offered by Leviathan.
However, without solution of the Cyprus problem, it is highly likely that construction of such a pipeline would still proceed despite likely objections by Cyprus.
In accordance to the law of the seas, UNCLOS, and the Energy Charter Treaty, Cyprus can pose environmental and routing objections but cannot ultimately prevent the project. And Turkey and Israel may not need to be involved directly, as the pipeline will be owned and constructed by the Turkish companies that would buy the gas.
Should Cyprus be unable to join such a project, then the options of exporting Aphrodite gas may become even more limited.
Dr Charles Ellinas is a non-resident Senior Fellow, Eurasian Energy Futures Initiative, Atlantic Council
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