Leviathan Partners Still Seeking Turkish Market

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Former Foreign Ministry director general: Turkey really needs Israeli gas.

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The partners in the Leviathan natural gas field will not call off their efforts to sell gas to Turkey, Delek Group Ltd. (TASE: DLEKG) CEO Asaf Bartfeld said a few days ago in a “Bloomberg” interview. He was responding to Turkish Minister of Energy Taner Yildiz, who stated, “Turkey will not sign a gas pipeline agreement with Israel, given the diplomatic tension between them during Operation Protective Edge.”

Israel sources believe that the Turkish option is still relevant. A senior gas industry source said, “Where there are good economic foundations, a deal will emerge, and in the case of Turkey, there is no doubt that it will happen.”

The Leviathan partners announced last week that they had signed an MOU for the sale of 45 BCM of gas to Jordan’s National Electric Power Company (JEPCO) for up to $15 billion. This deal follows MOUs signed in February 2014 with two Jordanian chemical production companies, Arab Potash and Jordan Bromine, operating on the eastern side of the Dead Sea for the sale of gas for hundreds of millions of dollars. The Israeli gas developers have also signed MOUs with foreign companies operating in Egypt.

The partners in the Tamar natural gas field signed an MOU in May with Spanish company Union Fenosa for the sale of 70 BCM of gas, and the Leviathan partners signed an MOU in June with British Gas for the sale of 105 BCM. “Bloomberg” believes that the monetary value of these two deals is likely to reach $60 billion.

The Palestinians and the Cypriots are also in the picture, with relatively small gas sale deals in the pipeline.

Former Ministry of Foreign Affairs director general Alon Liel, considered one of the most prominent experts in Israel on relations with Turkey, said, “There is no doubt that Israel should sell, and there is no doubt that Turkey wants the gas. Turkey really needs Israeli gas, despite all the statements, including the recent one by the Turkish energy minister.” Liel asserted that the agreements with Egypt and Jordan were welcome, but that this region is unstable, while Turkey, on the other hand, is considered a very stable country.

In recent months, the holders of rights in the Leviathan reservoir have negotiated with Turkish companies, and Turkish groups, including Turcas and Zurlu, have expressed interest in negotiations with the partners. The preferred option for gas exports from Leviathan is through a 500-km pipeline to southern Turkey. One of the difficulties is that the pipeline is slated to pass through the Cypriot economic marine area, and under the Sea Convention, the consent of Cyprus is required. Up until now, the Cypriot leaders have rejected the idea, given the tense relations between Cyprus and Turkey, which occupied the northern part of the island in 1974. Furthermore, Cyprus is trying to compete with Turkey as an energy passageway from Asia to Europe.

According to Liel, “If we don’t export our surplus gas, there won’t be any more drilling . There is a strategic asset here that could serve as glue for important diplomatic agreements.”

Profile of the Turkish natural gas system

The question of importing gas from Israel was discussed at a conference conducted early this month in Istanbul under the title, “Diversification of the Energy Sources of Europe and Turkey.” Among other things, ways of importing Israeli gas to Turkey were discussed. About half of Turkey’s electricity is produced from natural gas. The Turkish economy’s total gas consumption is seven times that of the Israeli economy, and it is expected to grow quickly and double in the next 20 years.

Along with Turkey’s burgeoning demand for gas, the country lacks its own independent sources, and must import its gas from suppliers at high prices. Turkey pays an estimated $15 per million metric British thermal unit (MMBTU) for gas from Iran, $12 for gas from Russia, and $10 for gas from Azerbaijan. In contrast, the local cost in Israel is $5.75 per MMBTU, while the average price in Europe in 2014 is expected to be $10.50. In order to compete with the European market, the Turks are trying to find a way to lower the price of their gas. The price of gas in Turkey is relatively high, because most of Turkey’s gas contracts are still linked to the price of oil, which entails risk. In Europe, on the other hand, only 50% of the contracts in recent years have been linked to the price of oil; the other contracts are influenced more by supply and demand in a competitive market.

Published by Globes [online], Israel business news – www.globes-online.com