Turkey: The new energy hub of the Mediterranean ?

The Middle East Magazine

Israel's apparent rapprochement with Turkey following US President Barack Obama’s visit in March is being watched for its impact on several vital political fronts affecting the region, ranging from the intensifying conflict in Syria and fears about Iran’s nuclear ambitions to the possibility of a dramatic breakthrough in efforts to resume peace talks between Israel and the Palestinians. 

But one of its most immediate effects may be to heighten Turkey’s role as the undisputed hub for the transport of oil and gas from the Eastern Mediterranean to Europe and possibly on to Asia as well. Such a development could help to transform the economic prospects of highly indebted countries such as Jordan, Cyprus, Lebanon and the Palestinian Territories of the West Bank and Gaza, as well as Israel and Turkey, and bring with it dramatic new incentives for regional co-operation rather than conflict.

Equally important is the fact that Turkey is also embarking on a major programme to invest in renewable energy sources, including solar and hydropower, that could transform its energy exports in the future, to the benefit of consumers in Europe as well as at home. That, together with the fact that, at least in the medium-term, its gas exports to Europe, particularly to its southern and eastern countries, could help to reduce their reliance on both oil and coal – that are far more polluting than gas – could spell a brighter future for the younger generations in Europe, as well as in the Eastern Mediterranean.

Israeli Prime Minister Binyamin Netanyahu’s surprise phone call to Turkish Prime Minister Recip Erdogan on 22 March – in the wake of Obama’s visit – to apologise for the military action Israel took in boarding the Gaza flotilla ship Mavi Marmara in international waters three years ago, leaving nine Turkish citizens dead, is expected to be followed by other concrete moves to restore relations between Tel Aviv and Ankara. As well as compensation for the families of the victims, these are expected to include the exchange of ambassadors and the resumption of talks on exporting Israeli gas to Turkey, which, despite its key role in the transport of oil and gas, lacks its own hydrocarbon resources.

The big prize, however, which is now expected to go ahead, is an underwater pipeline straddling the entire Eastern Mediterranean coastline. It would connect the huge new offshore finds in the Levant Basin, which are estimated to contain some 1,000bn cubic metres of gas, to European customers via Turkey. This is likely to put an end to current rival plans by Israel and the Greek Cypriot government in Nicosia to build their own liquefied natural gas (LNG) plants to transport the gas to Greece and to customers in China and other parts of Asia and, instead, link them with the other potential Mediterranean producers – Gaza, Lebanon, Turkish Cyprus and Syria into a common network that would be both less costly to build and far more lucrative in terms of export revenues for the coming decades.

For Cyprus and Turkey, “gas exploration and export could be the coal and steel commodity that united France and Germany after the war,” Andrew Duff, a British member of the European Parliament in Strasbourg, told the New York Times in late March. He was referring to the economic alliance formed after the Second World War that reconciled the two erstwhile enemies and which subsequently formed the basis for today’s European Union.

“Détente between Israel and Turkey could make the export of Israeli gas to and through Turkey feasible,” confirmed Michael Leigh, a senior advisor to the German Marshall Fund of the United States, the organisation set up in 1972 to honour the post-war American plan which rebuilt Europe in the late 1940s and early 1950s and which helped to lay the foundations for the decades of peace and prosperity that followed. Cyprus’s recent financial woes, he added, make “a new Israel-Cyprus-Greece Mediterranean energy corridor or political alignment unlikely. All three countries should seek ways to co-operate with Turkey in developing the region’s resources.”

“You get higher and faster revenues – I estimate €15bn more,” Fiona Mullen, director of Nicosia-based Sapienta Economics, told the press, “if you export gas via a pipeline to Turkey, rather than pour money into a costly and energy-intensive LNG plant that will initially not create jobs for Cypriots.” The same is likely to apply to Israel, energy analysts report, if Tel Aviv’s oil and gas partners can avoid building a proposed LNG plant to transport Mediterranean gas from Israel’s giant offshore Leviathan field to Asian customers.

The field, which together with Israel’s nearby Tamar reserves, is estimated to hold some $240bn worth of gas at current prices, could be linked via a pipeline to Turkey’s intercontinental energy export network at a considerably lower price, and be far easier to protect, they and other analysts note. It would also enable Tel Aviv to use Tamar’s resources to promote Israel’s own domestic growth by reducing the cost of electricity for the country’s households and industries, while still ensuring there is plenty of gas to export cheaply to Jordan and other Arab countries, as well as to Europe, for years to come.

Turkey is already a regional hub for the export of gas to central and southern Europe, both from the Caspian Sea and, via the Black Sea, from Russia, as well as from the oil-rich Kurdistan region in Iraq. Last autumn, Istanbul finalised a $7bn contract with Azerbaijan to build TANAP, the trans Anatolian pipeline connecting the vast Shah Deniz gas field off the coast of Baku to Europe via Bulgaria and Turkey. Stretching 2,400 miles (3,850km), the link will transport a whopping 16bn cubic metres (bcm) of gas a year, with the possibility that other supplies – eagerly pursued by the EU in Brussels – could be added from the rich reserves on the other side of the Caspian in Turkmenistan and Kazakhstan. Turkey would gain not only from the additional transit revenues a pipeline from the Eastern Mediterranean to Europe would provide, but would also be able eventually to import even larger quantities of gas from Lebanon, Syria, Gaza and, possibly Turkish Cyprus, as well as Israel, thereby ensuring its own long-term energy supplies for its rapidly growing industries. The expansion of Turkey’s role as a truly intercontinental energy hub would also, analysts say, cement its role as the future centre of a vast web of petrochemical complexes, refineries, export terminals, storage facilities, power plants and industrial zones ready to serve both Europe and the Middle East, as well as Central Asia and the Caucasus.

In February, even before Netanyahu’s apology, the Turkish conglomerate, the Zorlu Group, was reported to be discussing plans with Israeli officials and the partners in the Leviathan field, who include Noble Energy of the US and Australia’s Woodside Petroleum, to lay a subsea pipeline to southern Turkey. It would have a capacity of between 8-10bn cubic metres of gas a year, according to the reports. The field, which is located about 130kms off the coast of Haifa, is thought to contain at least 425bn cubic metres of gas, and pos- sibly substantial oil deposits as well.

Erdogan’s visit to Washington in mid-May for talks with President Obama will include discussions on further measures to consolidate the rapprochement between Tel Aviv and Istanbul, US officials say, and this in turn is helping to support a growing view among oil and gas industry experts that the pipeline will go ahead in one form or another. The severe austerity measures facing both Greece and the Greek Cypriots are also raising doubts among foreign investors about their ability to finance an expensive LNG alternative.

Lebanon, which has opened bids for its share of the Levant Basin reserves, like Syria, could benefit substantially from such a link, analysts say, not only because it would enable the country to export to Europe relatively cheaply, but also because it would gain transit revenues from a pipeline that has to pass through its territorial waters. So far, some 50 international oil companies have expressed an interest in developing Lebanon’s reserves, which are estimated at a minimum of 8 trillion cubic feet, and possibly as much as 25 trillion cubic feet – a size which would make them comparable to Israel’s. But, analysts caution, its own internal political divisions are holding up progress both on exploration and on investment. Lebanon’s influential militant Islamic group, Hizbullah, is also highly unlikely to want to be involved in a regional project that involves Israel.

Elsewhere in the region, one unexpected beneficiary of the new energy geopolitics sweeping the region could be the Turkish Cypriot government which has been excluded from Greek Cyprus’s exploration plans due to the divisions on the island and the lack of international recognition of the Turkish Republic of Northern Cyprus (TRNC). Turkey’s Foreign Minister, Ahmet Davutoglu, has launched a new proposal aimed at setting up a conference of Turkey, Greece and the two community leaders in Cyprus to resolve the division, which has existed for more than four decades. It is currently being considered by the UN Security Council, as well as the proposed conference members, and was reportedly discussed by US Secretary of State John Kerry during his visit to Istanbul in April.

Dervis Eroglu, President of the TNRC, said earlier this year that he had asked Greek Cypriot officials to assess the profits made from the island’s hydrocarbon wealth and to put the TNRC’s share in a separate bank account. “I suggested that we use that money to sort out the economic challenges once we decide on the terms of the unification of the island,” he added. Although that proposal was turned down, Eroglu confirmed, it is now expected to be re-considered, both because of Cyprus’ economic difficulties and because of Turkey’s more influential role in the region’s energy equation.

Palestine and the Palestinian people could be yet another beneficiary, at least in the medium-term, industry sources report. The Levant Basin includes reserves located off the coast of Gaza which were discovered in 2000 by the British gas group, BG which, along with its partners – Lebanon’s Consolidated Contractors Company and the Palestine Investment Fund – has sought unsuccessfully since then to develop them.

The reserves, which are estimated to total some 30bn cubic feet of gas, would be enough to supply Palestine’s needs for several years and could help to ensure a supply of affordable electricity to develop its private sector and provide much needed jobs for the Palestinian population.

Israeli media sources reported in March that Israel has re-opened talks with BG on exploiting the reserves and those in the nearby Noa South reservoir to compensate for the shortfalls in its supplies from Egypt. Erdogan’s growing ties with the Hamas government in Gaza and Turkey’s eagerness to press Israel to lift the siege on Gaza are topics that are also likely to come up during the Turkish President’s visit to Washington, regional officials say.

Given the Obama Administration’s concern to re- start peace negotiations between Israel and the Palestinians, plans to include the Palestinian Authority in Ramallah, as well as Hamas, in ways to exploit the gas reserves are likely to be included in the agenda for the bi-lateral talks between Obama and Erdogan, the officials add. Success in these discussions could provide a source of economic wealth and future prosperity for the Palestinians that would relieve some of the financial pressures on the Palestinian Authority and help to underpin any peaceful settlement, other analysts note.

Whatever the outcome of the regional talks on transporting the Eastern Mediterranean’s gas to European and/or Asian markets, it appears that the new accords between Israel and Turkey are already transforming the economic prospects for millions of the region’s inhabitants. If all goes well, they could help to ensure that the area’s newfound riches are developed peacefully, rather than being a source of future conflict.

Source: http://www.themiddleeastmagazine.com/news-detail.php?nid=262