Israel close to signing gas agreement with Turkey

Leviathan

An energy deal between the two countries is close says Energy Minister Yuval Steinitz and reports in the Turkish media.

Israel is closer than ever to signing an agreement to export natural gas to Turkey, according to reports in the Turkish and global press and statements by Minister of National Infrastructure, Energy, and Water Resources Yuval Steinitz in an interview at the end of last week with the "Bloomberg" news agency. Turkey wants to consume half of the quantity of gas in the Leviathan gas reservoir, starting in 2020. In the second stage, gas may be transported from Turkey to Europe through a pipeline.

"We have a strong connection with Israel, and importing Israeli gas to Turkey is a big deal for us," Zorlu Holdings CEO Omer Yungul said last week, adding that his company wanted to import 8 BCM of gas in the near future.

Zorlu is involved in the Israeli electricity sector, and together with Adeltech and Eilat-Ashkelon Pipeline, is a partner in private power station Dorad Energy. Adeltech and Zorlu also plan to build two more private power stations in Israel, and last January signed a gas supply contract with Leviathan.

Yungul's remarks came on top of statements by Turcas Petrol CEO Batu Aksoy that 15 Turkish energy companies were joining forces to promote the importing of Israeli gas to Turkey. Aksoy argued that Turkey, not Egypt, would be the anchor customer for Leviathan, and would consumer half of the gas in Leviathan. "The main advantage in assembling a consortium is distribution of the risks incurred in such a major deal," Aksoy asserted, adding that Turkey, which consumes 50 BCM of gas a year, wants to decrease its dependence on gas from Russia, the supplier of 55% of the gas used in Turkey, with Iran accounting for an additional 15%.

The more Turkey succeeds in diversifying its sources of supply and reducing its dependence on a single supplier, the greater its energy security, so the prices it obtains will be lower, and the supplier's political power will also be weakened.

"A passageway to Europe"

The heads of the Turkish companies mentioned another advantage importing Israeli gas will open a window of opportunity for Turkey to serve as a passageway to Europe. Europe is desperately seeking to diversity its sources of supply, since an average of 30% of the gas it consumes comes from Russia, and a large proportion of that is transported via Ukraine.

In recent months, however, Russia has been acting aggressively against Ukraine, threatening to halt the supply of gas to it, and also to raise prices, which obviously affects all of Europe.

Europe is promoting imports of gas, but by way of Cyprus, not Turkey. Last week, the European Commission announced that it would grant Cyprus €2 million for a feasibility study for a gas pipeline from it to Europe. A European Commission spokesman said, "The eastern Mediterranean gas reservoirs can help both the neighboring countries and countries seeking to bolster their energy security."

Progress in reconciliation efforts

In order for gas exports from Israel to Turkey to take place, the countries must first sign a peace agreement. Since the Mavi Marmara incident, relations between the countries have deteriorated, and Turkish President Recep Tayyip Erdogan has banned gas imports from Israel. Progress in the reconciliation efforts between the countries was achieved last week, with Israel Ambassador to the European Union David Walzer announcing in a lecture in Brussels that Turkey had rescinded its veto on Israel's participation in NATO exercises. NATO has not yet made an official announcement in the matter.

In addition, Turkish Prime Minister Ahmet Davutoglu resigned at the end of last week, and one of the candidates to replace him is Turkish Minister of Energy and Natural Resources Berat Albayrak, Erdogan's son-in-law.

A source close to the negotiations between Israel and Turkey told "Globes" today, "Abayrak's appointment as prime minister, if it goes through, will help move the gas export deal forward… Erdogan wants to sign a deal with Israel, and the appointment of the Minister of Energy will prove that he is attaching great importance to enhancing Turkey's energy security."

The political disputes with Turkey are not the only thing preventing the signing of a gas agreement. One of Turkey's conditions for signing an agreement is access to Gaza, and Egypt will not allow this to occur. As of now, Cyprus is also not permitting the deployment of a gas pipeline from Israel to Turkey through its economic waters, given the tense relations between Cyprus and Turkey, which occupied the northern part of the island in 1974.

Nor should the problem of the gas agreement be ignored, after the Israel Supreme Court struck down the regulatory stability clause. In Steinitz's Bloomberg interview, he asserted that Israel would soon present an alternative to the stability clause to Noble Energy and Delek Group Ltd. (TASE: DLEKG), and that the proposal would allow development of Leviathan to continue and the signing of gas export agreements with Egypt and Turkey. "…we are very close to resuming a diplomatic relationship with Turkey… Turkey is a huge market for gas," Steinitz said, adding that Turkey's consumption of gas would almost double in the next seven years: "They need our gas, and we need this market."

Steinitz predicted that an agreement with Turkey would be signed in the coming weeks. Egypt and Cyprus have announced that they were opening the sea to oil and gas exploration, and Steinitz announced last November that Israel's economic waters would be opened to new oil and gas exploration, four years after the Ministry of National Infrastructure, Energy, and Water Resources stopped issuing licenses. Six months have passed since then, and not a single license has been issued. The Ministry of National Infrastructure, Energy, and Water Resources stopped issuing new offshore exploration licenses in 2002 in order to make room for efforts to amend the Petroleum Law and establish a policy in the matter. Issuing of licenses resumed several years later, only to be discontinued again in 2012.

In his last report on development of the natural gas sector, the State Comptroller criticized the Ministry of National Infrastructure, Energy, and Water Resources for these actions, saying that it had caused a gas monopoly in Israel. The neighboring countries, on the other hand, are planning to distribute new licenses.

At a conference last week in Houston, Egyptian Minister of Petroleum Tareq el Molla announced that in the coming weeks, Egypt was planning to issue 28 new blocs. "The Zohr discovery whet the appetite of other foreign companies working in Egypt to speed up seismic discovery operations and exploratory wells," el Molla said, adding that Egypt was taking action at the same time to reduce its debt, which totaled $6.5 billion several years ago, and currently stands at $3 billion. He went on to say that the Zohr reservoir had created 5,000 new jobs in Egypt. Egypt has signed 66 new agreements to distribute licenses in the past 30 months, guaranteeing the country at least $14 billion in revenue. Last February, the government signed an agreement with Italian company ENI, which discovered the Zohr field. According to the plan, gas will begin flowing from it late next year. Cyprus also announced six weeks ago that it was granting a third round of gas exploration licenses, after Delek Group and Noble Energy discovered the Aphrodite reservoir in Block 12 from a license granted in the first round in 2007, and 33 companies competed for nine blocks in the second round in 2012. The winners in the second round included French company Total (two blocks) and ENI and Kogas (three blocks). Companies are expected to submit their candidacy by July.

Cyprus energy sector sources told "Globes" today that they hoped that Royal Dutch Shell would also participate in the third round. The Israel Ministry of National Infrastructure, Energy, and Water Resources asserts that the process of granting licenses is a long and complicated one, and that the sea will be opened for new licenses by the end of the year or the beginning of next year.

Published by Globes [online], Israel business news - www.globes-online.com - on May 9, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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