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FACTDROP: Turkey and Israel change the gas game
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3/25/2013

Turkey and Israel change the gas game


Πηγή: Cyprus Mail
By Stefanos Evripidou
March 25 2013

THE US-brokered Israeli apology to Turkey has opened the door to the resumption of close relations between the two former allies and raised the prospect of energy collaboration in the eastern Mediterranean, raising questions as to the potential impact on Cyprus’ own gas plans. 
 
Last Friday, Israeli Prime Minister Benjamin Netanyahu expressed Israel’s apology to Turkish Prime Minister Tayyip Erdogan “for any mistakes that might have led to the loss of life or injury” during the raid on the Turkish ship Mavi Marmara, which tried to reach Gaza in 2010, resulting in the death of nine Turkish activists.

The next day, Erdogan said Israel’s apology highlighted Turkey’s growing regional clout. 

“We are entering a new period in both Turkey and the region,” said Erdogan, who plans to visit the Palestinian territories, including the Gaza Strip, next month.

“We are at the beginning of a process of elevating Turkey to a position so that it will again have a say, initiative and power, as it did in the past,” he said.

Netanyahu, in a post on his Facebook page on Saturday, said deteriorating circumstances in Syria were a main factor behind his decision to resolve the crisis with Turkey.

According to Reuters, a source close to Netanyahu said the new chapter in Turkish-Israeli relations could be very important for the future not just regarding what happens in Syria but also developments in Iran. 
 
Apart from removing Turkish objections to Israeli participation in NATO exercises, the prospect of reconciliation has also “removed a big obstacle to collaboration over the development of strategic energy resources in the eastern Mediterranean”, reported the Financial Times (FT) yesterday. 

The London-based paper noted that improved ties between Turkey and Israel could also affect Cyprus should greater energy cooperation result in Nicosia getting sidelined. 

A Turkish official told FT that reconciliation also made a possible gas pipeline from Israel to Turkey a “much more viable” idea. 

According to FT, Noble Energy and Delek Energy, who are the main investors in Israel’s large offshore natural gas fields- as well as partners in Cyprus’ Block 12- have in recent weeks “sounded out possible customers in energy-hungry Turkey”. 

The paper noted that until now, the private sector was eager to proceed with a possible pipeline between Israel and Turkey but that the political rift between the two governments did not allow progress to be made.
With the first step in reconciliation taken, will further collaboration in the hydrocarbons sector leave Cyprus with fewer choices as to where and how to export its own gas? 
 
Israeli deputy ambassador to Cyprus Shani Cooper said yesterday: “The normalisation of relations between Turkey and Israel was an important bilateral step but it will not affect any multilateral, trilateral or bilateral relations between Israel and other countries. Israel will maintain its close relations with Cyprus, and continue strengthening them as we have done the last few years.” 
 
Matthew Bryza, a former US ambassador to Azerbaijan, was quoted by FT saying that without Israel to provide economies of scale, “in the short term the Cypriots lose their ability to do a pipeline or an LNG (liquefied natural gas) option”, adding that in the longer run a Cypriot pipeline to Turkey would make most commercial sense.

However, speaking to the Cyprus Mail, an industry insider argued that a pipeline from Cyprus to Turkey was not so obviously beneficial, even if the financial savings appeared attractive at first glance. 

“You’ve got a 25-year project. Are you comfortable having Turkey being your best friend for that length of time? With LNG, you can change your customers, do whatever you want. With a pipeline to Turkey, you only can sell to Europe, and the pipeline to Europe is too far,” he said. 

The source argued that LNG was the best option for Cyprus: “The key is to find enough gas to make it commercial. And if you can add gas from the nearby Israeli gas field Leviathan, even better.” 
 
A Cypriot diplomatic source told the Cyprus Mail that reports suggest Turkey is seriously considering a pipeline between Israel and Ceyhan. 

“This could very well be a game-changer. There is much more (to the apology) than meets the eye,” he said.
“It is naive not to think that they will put everything in one basket in the future: the Cyprus problem, hydrocarbons, Erdogan’s water pipeline project. All of this will come to a head,” he said, adding, “With Cyprus’ gas reserves, there is a light at the end of the tunnel, but let’s hope it’s not a train.” 
 
Regarding a pipeline between Israel and Turkey, another diplomatic source reminded that Israel has yet to even take a decision on whether it will allow the export of natural gas. The latest opinion of an advisory committee of the Israeli government is that if gas should be exported, it will have to go through Israel first.
The industry source argued that it was too early to tell whether a Turkey-Israel pipeline was even feasible both politically and physically. 

One has to take into consideration the route that any pipeline would take. Will it pass through Lebanese and Syrian waters or go around them by cutting through Cyprus’ Exclusive Economic Zone (EEZ)?
“We’re talking about going up against horrendous engineering challenges. And it’s not just about building it, but maintaining it. It’s doable but it won’t be cheap,” said the source. 

Should Israel and Turkey decide to go ahead with the pipeline, the industry source argued this would not affect Cyprus’ decision to build an LNG plant initially with one train to accept gas via pipeline from Noble’s Block 12 A-structure, which has an estimated 7 trillion cubic feet of natural gas.
The thinking behind the ‘stand alone’ project is to get gas from the Aphrodite field in Block 12 to the LNG plant earmarked for construction at Vassilikos by 2019. 

“This is an aggressive, challenging but achievable target,” said the source.
 
Should more gas be found in other parts of Block 12, or in the blocks recently acquired by French, Italian and South Korean companies, Total, ENI and KOGAS, then more trains will be built at the LNG plant to take in more gas. The current thinking is that Cyprus’ EEZ has plenty of potential for more hydrocarbon discoveries. 

The source argued that a pipeline from Block 12 to Vassilikos and the operation of an LNG plant are not dependant on the inclusion of Israeli gas from the nearby Leviathan gas fields. In any case, should Israel agree to export its gas, it would have to build its own pipeline to Vassilikos as the depth of water in the region does not allow a big enough pipeline to be built to cover the needs of both Aphrodite and Leviathan fields. 

Asked whether the current economic crisis in Cyprus could affect energy development, the source said only if the government should take its foot off the pedal, though at the moment, it “seems willing to proceed expeditiously”. 

He added: “The whole project could provide very robust and meaningful amounts of money that would be coming into the country.” 

Regarding press reports that Russia could participate in the financing of an LNG plant, the source said Russia would then have a say over the tariff charged to gas companies using the plant. 

“If the Russians want to make a killing they will have very high fees, making LNG very costly, and as a result, Cyprus won’t make a big profit. If they’re reasonable, it could work. But you don’t want someone not totally trustworthy having their hand around your throat.”


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