Turkey: Game Changer Discovery: Leviathan Gas Field And Turkey's Energy Projection

Last Updated: 5 June 2014
Article by SAFAK HERDEM

Current gas field discoveries covering Leviathan and Tamar gas fields induced Israel to scrutinize applied energy strategies in Mediterranean Sea. In the light of these regional developments Israel's imported natural gas dependency is expected to reduce whilst energy driven industries will be ignited by upward domestic natural gas resources. Leviathan gas field, which was explored in 2010 is housing 750 bcm natural gas along with 600 million barrels of oil reserves will set up rules of games in energy markets.

Political Pattern: Israel and Turkey Relations

The energy politics has already triggered a new found rapprochement between beleaguered former allies, Turkey and Israel, in which the Israeli Minister of Environment Amir Peretz has recently visited Turkey to join a multilateral conference on environmental issues concerning Mediterranean, the Israeli airlines El-Al announced that it is seriously considering to re-start its flights from Istanbul to Tel Aviv and the Israeli representations in Turkey cancelled their national day celebrations in Istanbul and Ankara in memory of the miners perished in the incident that has recently taken place in Soma which met with the appreciation of Turkish Prime Minister Recep Tayyip Erdoğan who thanked Israel for its sensitivity. On the part of the Turkish side, recent statements point to a possible agreement on the issue of indemnity to be paid by Israel to the victims of Mavi Marmara. Such developments clearly show that a normalization of diplomatic relations between two countries are on the horizon and a possible cooperation on the energy front in which Turkey is a net importer, is a quite plausible possibility.

Transportation Alternatives: New Turkey-Israel Pipeline Project Close At Hand

Netanyahu government aims to structure a multifunctional energy policy that will benefit from geopolitical position of Israel with the intent of risk diversification on transportation of descried natural gas. A hot button is construction an offshore or onshore LNG terminal that Israel government is laying emphasis on. In the first phase of the Leviathan gas field partnership, predominating shareholder is Texas based oil & gas company Noble Energy with 39.66% of total shares while two Israel companies Delek Drilling and Avner Oil &Gas, each of hold 22.67%. Notwithstanding current partnership structure, Woodside Petroleum Ltd. ("WPL"), Australia's second-biggest oil and gas manufacturer, opened up negotiations with existing shareholders in an attempt to purchase a quarter of Leviathan gas field. The mainstream about this new potential partnership is witnessing a cutting-edge technology which is based on liquefying gas on ships offshore. However, Woodside took steps backward from the deal and it disrupted construction floating LNG terminal in Mediterranean.

Another LNG terminal project may arise in Cyprus which is notably appealing either Israel or Cyprus. In the eye of Cyprus, such a LNG project for Leviathan gas will be remarkably cost effective in comparison with Aphrodite gas transportation which requires to construct a pipeline between Cyprus and Greece. According to feasibility studies, the cost of LNG terminal will cost one third to one half as much as Aphrodite gas export by pipeline for Cyprus. Besides, Capital expenditures ("CAPEX") of LNG terminal in Cyprus will be also lower thus it will be very attractive for the Leviathan investors which are also operate in Cyprus for Aphrodite gas export.

As regards to Turkey, sub-sea pipeline between Turkey and Israel will provide the cheapest option for transportation of Leviathan gas. Approximately 2.5 billion dollars investment on pipeline will be required which is blatantly less than LNG terminal construction in Cyprus. Additionally, providing that Trans-Adriatic Pipeline ("TAP") and Trans-Anatolian Pipeline ("TANAP") are linked to pipeline, Leviathan gas will find opportunity to transport European Union countries through the Southern Gas Corridor. As a consequence, Turkey is able to be the natural gas trading hub between Europe and Asia.

Legal Obstacles: Diplomatic Conflicts of Cyprus and Turkey

The United Nations Convention on the Law of the Sea ("UNCLOS ") was signed in 1982, defined rights over use and maintain of sea for the purpose of energy production by countries and restricted the distance from the shore with 200 nautical miles from coastal baseline by prescription of exclusive economic zone ("EEZ"). Pursuant to Article 79 of UNCLOS, All countries are subjected to permission of coastal state of continental shelf for the purpose of subsea pipeline construction. Hence, a breakthrough in Cyprus-Turkey relations is the essential issue standing against a projected pipeline project between Turkey and Israel.

Expert Opinion: Breakthrough Gas Price Falls May Soon Be Possible

Leviathan gas exploration has already changed the geopolitical importance of such countries Israel, Turkey and Cyprus. Apart from this, even though political risks are carrying on between Turkey and Cyprus, on condition that Turkish investors are willing to make investment on pipeline between Turkey and Israel, it will directly affect natural gas prices in Turkey which currently driven by Russia Most particularly publicly listed companies' share prices are forecasted to increase if they invest in Leviathan gas transportation due to the fact that it is very promising. As soon as pipeline commence on operations, Russian natural gas provider Gazprom will be enforced to reduce exported gas prices to Turkey. In the meantime, if the networking between Eastern Gas Corridor and Leviathan gas field is provided, European energy markets will also experience drop of the natural gas prices. On the other hand, legal amendments related to gas export and import contracts and licensing procedures shall be completed for the purpose of ensuring free pricing mechanism for prospective targets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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SAFAK HERDEM
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