MILAN/LONDON - Reuters
Israeli gas platform, which produces newly discovered Israeli natural gas, is seen in the Mediterranean sea, west of the port city of Ashdod in this February 25, 2013 file picture. REUTERS Photo
Israel's drive to export its new-found natural gas could help to rebuild strained ties with old regional allies Egypt and Turkey, but could deprive Europe
of a precious alternative to Russian
Israel has in recent months already signed energy deals with Jordan and the Palestinian Authority, though relations with the Palestinians are at a low ebb, and now needs to expand its export horizons to cash in on its huge energy discoveries.
If all goes well, the latest developments could see first pipelines being laid between Israel
and Turkey as soon as 2015, and gas cooperation between Israel
and Egypt is also emerging, which would allow export access to Asia's major markets.
A growing population and soaring demand have left Egypt's own liquefied natural gas export (LNG) plants in need of new supply, as domestic shortages eat into seaborne exports through the Suez Canal to the world's most lucrative market in Asia.
This has put Israel's previous plans to pump its gas reserves into a future export plant in Greek
Cyprus on the back burner, dealing a major blow to the indebted Mediterranean island's ambitions to become a global player in the gas market.
Cypriot LNG export plant was due to deliver at least 5 million tonnes a year to Europe
and Asia, allowing Europe
to reduce its growing dependency on Russia, which has become of particular concern since the crisis in Ukraine
cast a Cold War chill over East-West relations.
Israel's new plans throw Greek
Cypriot developments into doubt as investors would require more gas than Cyprus has on offer to make returns on multibillion-dollar investments.
has really ditched Cyprus as a partner to develop the region's gas resources, then we (Cyprus) really do have to find quite a lot more gas if we want to become a viable exporter, and that would inevitably throw our plans back by several years," said one source involved in developing Greek
Cyprus's gas reserves.Turkish Rapprochement
Once close allies, ties between Israel and Turkey were severely damaged following a deadly raid by Israeli commandos on a Turkish yacht carrying pro-Palestinian activists trying to defy an Israeli blockade on the Gaza Strip in 2010.
Poor relations remain a barrier to a deal on gas, though the sides are talking.
"High-level negotiations on resolving political issues, and lower-level negotiations aimed at making progress on energy have always been held," said a senior Turkish energy official. "Normalisation on the relations will pave the way for investment and cooperation on energy."
U.S-led reconciliation efforts in recent months could be boosted by the promise of gas.
"There is clearly significant potential for turning East Mediterranean's new gas wealth from a potential source of conflict to a catalyst for regional cooperation," said Oxford Research Group analyst Sara Hassan. "Turkey will want at least to be seen as trying to leverage better conditions for Palestinians alongside any potential deal."
Peace talks to resolve the generations-old conflict between Israel
and the Palestinians are close to collapse, with the Israeli government beginning to impose new economic sanctions on president Mahmoud Abbas's West Bank Palestinian Authority amid mutual recriminations about the deadlock.
Talks between the Leviathan consortium and Turkish counterparts are focusing on building a 10 billion cubic metre (bcm) sub-sea pipeline at an expected cost of $2.2 billion, giving Israel
access to a major emerging market and one of Europe's biggest power markets by 2023.
"We think construction phase for a pipeline to transport Israeli gas to Turkey could begin in the second half of 2015," a Turkish energy official said.
A separate yet-to-be-built pipeline linking Europe
with the Caspian through Turkey in 2019 could eventually also open up a new market for Israeli gas in western Europe.
An envisaged 25-year supply deal would steady Turkey-Israel ties and boost economic links, while Turkish sanctions against Israel
would be lifted and ambassadors reinstated, he said.
"The Turkish market for natural gas is the only growing one (in the region), and the drive to diversify away from Russia
will justify Israeli gas to join Azeri, Iranian and Kurdish gas," said Mehmet Öğütçü, chairman of London-based Global Resources Corporation consultancy.
"The Turks realise that if this gas project is implemented without their involvement, they will not be a game-player in East Med. Hence, the Turkish private sector could be encouraged to take the lead and politicians follow them at a later stage," according to Öğütçü.Gateaway alliances
The possibility of sanctions on Russia's energy sector in response to Moscow's annexation of Crimea and troop build-up along Ukraine's eastern border have underscored Europe's acute need to diversify its oil and gas sources.
Israel plans to export gas by pipeline and through several floating LNG production plants, which cool gas to liquid form, so they can ship it to the world's largest markets.
At stake for Israel
is a $150 billion tax take should export deals be agreed by a consortium operating its gasfields. Its strategic re-alignment effectively places a tantalisingly close new gas province out of Europe's reach.
"Ultimately Egypt and Turkey need energy, and the fact that we have it is creating a regional convergence of interests," an Israeli diplomatic source told Reuters.
Egypt offers a way for the U.S.-Israeli group of companies developing Israel's giant Leviathan gas field to reach the Asian market, where LNG fetches about twice the price Europeans pay.
"If the companies operating the fields in Israel
could reach an agreement with the companies that are operating those facilities, it seems it would benefit Egypt, Israel
and all the companies," said Eugen Kandel, head of the national economic council at the Israeli Prime Minister's office.
Egypt and Israel
have had only limited economic cooperation since signing a landmark peace accord in 1979. Political turmoil in Egypt in recent years has further limited cooperation between the neighbouring countries.
Talks between the Leviathan consortium - Israel's Delek Drilling, Ratio, and Avner Oil, and U.S.-headquartered Noble Energy - and Egyptian authorities are focusing on feeding Israeli gas into the country's idled LNG export facilities.
Britain's BG Group, which runs one of Egypt's under-utilised LNG plants and is among the world's top LNG trading firms, is in talks with the Leviathan partners.
The favoured option is to build a sub-sea pipeline from Leviathan to link up with BG Group's offshore pipeline network in Egyptian waters, allowing Israeli gas to feed directly into its LNG plant at Idku, according to industry sources.
If realised, this would not only revive output at Idku but also mean that Israel's first LNG exports would take place from an Egyptian plant.
Previous land-based pipelines between Egypt and Israel
were repeatedly bombed by groups opposed to links with Israel, but a subsea pipeline would be much harder to target.
Egypt is struggling to meet rising domestic demand for energy, and a fall in domestic output and power blackouts have stirred dissent in the Arab world's most populous state.
Israeli gas could help ease domestic shortages, take the sting out of the energy-related unrest that contributed to the overthrow of former president Mohamed Mursi, and lighten Egypt's $6 billion debt burden to energy majors like BG Group.
As part of a twin-track export policy, Israel
also aims to ship LNG to distant Asian and South American
markets through a floating plant to be moored above the Leviathan field.
"We definitely want to strengthen the economic ties with our neighbours, but we also don't want to be too exposed to possible upheavals in the region, so Israel
has to have outlets that do not limit us to the region," Kandel said.