Energy Needs Trump Turkey-Israel Tension

ByEmre Peker

ISTANBUL—Turkey and Israel’s political divergence in the past few years is of little concern to businessmen, especially when some of the world’s largest natural gas deposits are at stake.

Israel, together with Cyprus, sits on more than 120 trillion cubic feet of natural gas in the Eastern Mediterranean, according to U.S. Geological Survey assessments. That’s enough to meet natural gas needs for 2,400 years in energy-starved Turkey, which relies on Russia for 60% and Iran for 20% of its imports.

The trick is navigating the choppy political waters. It’s a difficult proposition as Turkey-Israel ties have been at best strained for the past three years, and Ankara doesn’t even recognize the Cypriot government in Nicosia.

But executives from Turkish and Israeli energy firms say their deals can allow corporations to surmount the obstacles politicians can’t overcome. If they succeed, Turkey may see a fifth of its annual natural gas consumption, of about 50 billion cubic feet, coming to its shores with a pipeline from Israel, and crossing Cyprus’s economic zone, in a mere four years.

“This project is feasible both commercially and politically. Currently, we’re in talks with significant energy, private-sector players in Turkey,” Israel-based Delek Drilling’s Chairman Gideon Tadmor said Thursday at an energy summit in Istanbul. “There’s no reason why piped Israeli gas can’t penetrate the Turkish market by as early as 2017. In order to do that, we need to accelerate negotiations, accelerate the development process, and get, obviously, the support of both governments.”

Zorlu Energy is one of the Turkish firms that Delek is talking with to establish a joint venture that will build a pipeline, estimated to cost at least $2.5 billion, the Istanbul-based company’s General Manager Sinan Ak told reporters at the sidelines of the conference.

As more natural gas comes online for Delek, Israel may pipe as much as 20 billion cubic feet of gas annually to Turkey, he said. Zorlu runs three power plants in Israel and is the second biggest buyer of Delek’s natural gas behind state-owned Israel Electric Corp.

Hurdles do, however, remain.

Ankara’s relationship with Israel is in a difficult recovery from an Israeli raid on an aid ship seeking to break the blockade of the Gaza Strip in 2010, when nine Turkish nationals died.

At the urging of U.S. President Barack Obama, Prime Minister Benjamin Netanyahu’s apologized in March to his counterpart, Recep Tayyip Erdogan. But even that did little to smooth relations. In August, the Turkish premier blamed Israel for the coup in Egypt, drawing rare condemnation from the U.S., Ankara’s ally in the North Atlantic Treaty Organization.

And Turkey hasn’t established ties with Cyprus since invading the country’s northern part in 1974 to prevent a coup aimed at uniting the island with Greece.

In 2011, Mr. Erdogan sent warships and fighter jets to the Eastern Mediterranean amid a dispute over drilling in the dividend island’s waters. Officials in Ankara also reject Nicosia’s assurances that future natural gas revenues would be fairly split to protect the interests of Turkish Cypriots, opting to explore on the northern part of the island instead.

But energy executives say transmitting natural gas to Turkey won’t require intra-governmental agreements. Hence, pioneers like Zorlu and Delek can manage the transaction with little support.

Turkey must first adopt a draft law that would provide import licenses to firms like Zorlu, and then guarantee that it won’t prevent businesses from importing gas from Israel, Mr. Ak said. Similarly, he added, Israel would have to guarantee to Delek that it won’t block sales to Turkey. Lastly, Cyprus would have to let the pipeline pass through its economic zone.

The scenario would also be a boon for crisis-ridden Cyprus, Mr. Ak said. Israeli firms led by Delek, which is drilling for Cypriot gas with U.S. firm Noble Energy, could arrange a swap to burn Nicosia’s gas in Israel, thus freeing Israeli gas for exports. That, in return would give an economically feasible outlet to Cyprus, which is also considering a liquefied natural gas, or LNG, terminal on the island to get start exports.

Despite the many alternatives and moving parts, Israeli and Turkish businessmen seem determined to build their pipeline. The Israeli supreme court ruled last week that Israel can export 40% of its natural gas, and Turkish Energy Minister Taner Yildiz has repeatedly said that the most economically feasible way to export Israeli gas is through Turkey, fueling hopes for the project.

“We are business people, we have to be optimistic. If this gas weren’t competitive, I wouldn’t be sitting here discussing this subject,” said summit panelist Batu Aksoy, chief executive officer of Istanbul-based Turcas Petrol, which is also reportedly vying to import Israeli gas. “We are not too far away from a possible solution. The Middle East and East-Med are always open to surprises and I hope that the surprises can happen sooner rather than later.”