The reopening of Turkey’s relations with Israel and Russia also opens the competition between Israeli natural gas and Russian natural gas for Turkey’s energy security. All diplomats and heads of state say that they welcome the improvement of relations among all countries, but in the end the market for gas imports in Turkey is finite.
Turkey’s energy security in European Context
In the context of its new Energy Union project, the EU is more likely to look favorably upon gas imports from Israel and Cyprus than from Russia. This is because of the founding principles of the Energy Union, which include the security of energy supply through the diversification of suppliers. This need to diversify suppliers should, all other things being equal, encourage the logic of Turkish energy cooperation with Israel for Turkey’s energy security.
The question on the EU side is whether the European Commission, which elaborates the Energy Union, will be able to overcome the interests of French and German national energy trusts. These trusts are still heavily invested in cooperation with Russia. Only an administrative decision by the Polish national energy regulator was able to halt the Nord Stream Two pipeline project, which threatens to double the volumes of Russian gas exports to Germany under the Baltic Sea. This gas would be distributed by Germany to the rest of Europe as well as consumed domestically in Germany.
Long-term skepticism over the Russian-sponsored South Stream project was rewarded by its failure, leading to its subsequent transformation into the Turkish Stream project. But Russia continues to regard the latter more as a geopolitical than as an economic project. The case of the Blue Stream pipeline demonstrates that Russia does not in general hesitate to make large uneconomical capital investments for the purpose of creating long-term energy dependence.
Russia and Turkey’s energy security
When the two sides were discussing the Turkish Stream project earlier, there was disagreement between Russia, which simply wanted to use Turkish territory for transit for selling the gas onward, and Turkey, which justly insisted on construction of value-added upstream facilities. Such facilities not only increase the economic profit to Turkey but also can provide for the skilled training of the Turkish labor force. Azerbaijan, for example, made such cooperation over human resources into an integral part of the agreement to build the Trans-Anatolian Gas Pipeline (TANAP).
There are significant doubts about whether Russia is able to finance the Turkish Stream project. The low price of gas on the world market today, together with long-term corporate structural problems, has created a “perfect storm” that significantly impairs Gazprom’s ability to undertake foreign projects.
The difficulties that persist in the launch of the Power of Siberia project with China show that these problems, including the financial issues, affect even domestic Russian production. Yet is unlikely that international financial institutions will underwrite the Turkish Stream project. At the same time, Gazprom’s capacity to finance it alone is, in contrast to the past, legitimately questioned.
Returning to the Cyprus situation: It is not possible to construct an Israeli-Turkish pipeline without Cypriot permission, because such a pipeline passes through exclusive economic zone of Cyprus and across its continental shelf. That would require cooperation with Israel, for the simple reason that it is uneconomical to develop the Cypriot fields alone.
Israel’s Leviathan and Tamar fields together are estimated to hold 900 billion cubic meters (bcm) of gas, of which approximately 150 bcm is tagged for export. Technical studies show that a pipeline to Turkey for Turkey’s energy security is the most feasible route. A route from Cyprus to Greece would require a 1,100 km deep-water pipeline, but one to Ceyhan would be under 500 km and the waters of the eastern Mediterranean Sea are relatively shallow.
The EU has studied a route that carries the gas to Cyprus, from where it would go to either Crete or the Greek mainland, thus enabling exports of Cyprus’s gas as well. Liquefying the gas for maritime transportation, once considered an alternative, turns out to be uneconomical. A further variant being studied is to build a station from which both Israeli and Cypriot gas would be pumped, for transmission to Turkey.
Cyprus, Israel, and Turkey’s energy security
Discussion among Cypriot and Israeli industrial and government circles have been under way for some time. The political resolution the division of Cyprus would open the way for trilateral Cyprus-Israel-Turkey cooperation. Especially given the relatively new energy dimension of relations, certainly this would be a win-win-win situation. Reunification of Cyprus could permit development not only the Aphrodite field to the south of Cyprus, but also fields off the north of the island, benefiting its whole population.
In addition, Cyprus is an EU member. In the event of the successful resolution of the political division of the island republic, there is little doubt that Brussels would smile upon investment in its offshore gas fields. It might even implicitly guarantee markets, as a reward for the conflict settlement itself, even while insisting that any development be economical on its own terms.
According to former U.S. ambassador to Azerbaijan Matthew Bryza, who is now a member of the board of Turcas Petrol, the pricing model would not be linked to oil prices or even have a target price (as Russia’s long-term contracts tend to prefer). Instead, the price would be based on natural gas trading hub prices and entirely determined by the market. This is the direction in which the world market for natural gas is generally headed.
A 500-kilometer deep-water pipeline from Israel to Turkey for Turkey’s energy security would have to be financed by private investors, possibly with the participation of a state-owned company. An intergovernmental agreement, probably including a reunified Cyprus, would be necessary to establish the framework for such investment. This kind of agreement would guarantee the predictability of the business environment that investors will need in order to have confidence to invest (and for insurers and re-insurers to be willing to accept the risk). The sooner this happens, the faster the project can develop.