Exporting Israeli natural gas to Turkey is probably the main possibility for the development of the Leviathan reservoir.
Now, the two countries need to seriously consider how to move ahead with such a deal,” says senior Turkish energy expert Nusret Comert, who has visited Israel several times to consider possible cooperative ventures between the two countries.
“A deal is very economically worthwhile for both sides, and is the right thing to do strategically.”
Comert, who has over 30 years of experience in the global gas industry especially in Turkey, is considered the number one expert in the Turkish energy sector.
Question: The gas plan approved by the Israeli government in August gave the Leviathan partners four years to develop the Leviathan gas reservoir, but many in Israel assert that given today’s oil and gas prices, they will not be able to obtain $8 billion in financing for developing it. What is your view on this?
Answer: “There’s no doubt that this will be very challenging economically.
The plunging price of oil has caught everyone unprepared, and gas companies are backing off from projects requiring huge investments like those required by the Leviathan reservoir.
It would have been far better had the gas companies in Israel signed long-term export contracts a year ago, when oil prices were high and an atmosphere of stability and confidence prevailed in the markets.
At the same time, from a geopolitical perspective, now is the time to export gas from Leviathan, because there is a market for it in Europe, and when I say now, I mean now, not in two or three years, and not even in another year.”
Why Europe, and why now?
“Because Europe is desperately looking for ways to diversify its sources of supply.
On the average, more than 30% of the gas currently consumed by Europe comes from Russia, and a large percentage of that comes through Ukraine.
In recent months, however, Russia has been pursuing an aggressive policy against Ukraine and halting the flow of gas to it, which obviously affects Europe as a whole.
In addition, Russia recently decided to cancel the south stream pipeline project, which was to have reached Europe by way of Bulgaria.
Far more than it did a year ago, Europe now realizes that it is in a critical state, and must take action.
It is now making every effort to find alternative sources of gas that will reduce, even slightly, its dependence on Russia.
Gas from the Middle East in general, and from Israel in particular, could be a solution for it.”
All eyes are trained on Egypt.
The Tamar partnership signed a letter of intent with Spanish company Union Fenosa, which has a gas liquefaction facility at Damietta, and the Leviathan partnership signed a letter of intent with British company BG, which has a liquefaction facility at Idku.
While the first deal was designed to facilitate the expansion of the Tamar reservoir and raising the supply of natural gas to Israel, the second is designed to help raise the capital needed to develop Leviathan.
So far, no final agreement has been signed with either of the companies, and there is a lack of clarity concerning the possibility that any such deals will be signed.
According to Comert, however, Egypt is not at all the right target.
“I don’t think that Egypt is the address for the development of Leviathan, and I don’t see at the moment how exports of Israeli gas to Egypt can actually go ahead,” he says.
“The first reason is obviously plummeting oil and gas prices. Both the Spanish and British companies planned to import the gas to Egypt in order to export it to their customers in Europe and Asia, but while the average price of gas in Europe was $13 per mmbtu last year, today it is at $7.
The cost of importing gas from Israel to Egypt, plus the cost of liquefaction, transportation to Europe, and turning it back into gas, make the deal only marginally viable.
Furthermore, several months ago, Royal Shell announced that it had acquired BG.
When Shell examines its portfolio, I’m not sure whether it will want to do business with Israel, among other things because it wants to operate in Iran, and it has announced that it will sell $30 billion worth of assets in order to cover the cost of its BG acquisition.”
What do you think can make developing Leviathan possible?
“Signing a gas export contract with Turkey. Exporting gas from Israel to Turkey is currently the best, if not the only, possibility for developing Leviathan.
Turkish gas consumption has doubled over the past decade, and now stands at 48.6 BCM.
The rate of increase in gas consumption in the country is the fastest in the world, with consumption projected to double in the next 20 years.
Like Europe, Turkey wants to diversify its sources of gas, and in my opinion, can import 7-8 BCM annually from Israel.”
It was expected that it would be able to import gas from northern Iraq until 2016, but the Islamic State’s activity in the area is making this impossible.
In addition, the gas coming from Russia through Ukraine is not flowing continuously, and the Trans-Anatolian gas pipeline (TANAP) from Azerbaijan, which was slated for construction by 2018, has been delayed at least to 2020.
Another pipeline that Russia was supposed to have built, Turkish Stream, is also being delayed.
Comert: “Turkey can be the anchor customer that Leviathan needs, and as I said before, this is also the most economically worthwhile deal for both parties.”
Turkey will be willing to pay more than the Israeli, Egyptian, or European market will be willing to pay for the Israeli gas. Turkey has no gas resources of its own, and currently must import gas at relatively high prices (it is estimated that Turkey pays $15 per mmbtu to Iran, $12 to Russia, and $10 to Azerbaijan).
The price in Egypt, on the other hand, ranges from $3.10 to $5.80 per mmbtu.
Another reason lies in the fact that exporting to Turkey requires only a marine pipeline, not liquefaction facilities, as in the export deal to Egypt.
According to Comert, “A gas contract is usually signed for 20 years, and a lot of things change in 20 years, for example, it is possible that the demand forecast for natural gas is too high, or that Egypt will develop renewable energy sources, and will no longer need all the gas it has imported. In that event, a problem arises.
Therefore, before a country signs a decades-long gas contract, it looks at the energy markets adjacent to the target country, and asks itself whether those markets can be used as customers if things change.
In the case of exporting gas to Turkey, this is precisely the situation.
“As I said before, Europe is starving for sources of gas other than Russia, and a pipeline to connect it to Turkey, TAP, is currently under construction.
In the case of Egypt, on the other hand, the gas can be exported directly to no neighboring country.
A deal with Turkey therefore gives Israel great flexibility.”
The private companies can sign a deal with the Israeli gas companies, and sell the gas in the local Turkish economy to power plants, factories, and homes.
When the sanctions against Iran are removed, Turkey surely plans on importing gas from Iran.
Is this not expected to affect any deal between Turkey and Israel?
“Turkey already imports 10 BCM of gas a year from Iran, so the way I see it, there will be no problem in buying gas from Israel even after the sanctions are removed.
The most important thing for Turkey is to diversify its sources of supply, and Israel is a good source: reliable and relatively cheap.”
Apropos the Iranian market, how in your opinion will Iran’s entry in to the energy sector affect the gas sector in Israel?
“The process of Iran’s entry into the global energy market will take a long time, because it must do quite a few things before it manages to export large quantities of gas.
It could take a decade. It will also take more time for the recently discovered gas in Iraq and Africa to start flowing.
Nevertheless, Iran has the second largest gas resources in the world, amounting to over 18% of the world’s gas reserves (the reserves in Israel are 0.5%).
Therefore, as soon as Iran enters the picture, the global gas sector will change, and this will obviously also affect the Israeli gas sector.
That is exactly the reason for my argument that if you want Leviathan to stay relevant, the partnership must act quickly, and sign export contracts as fast as possible, while there is still a market for it.”