ALI ÜNAL, ANKARA
02.10.2016
The former Deputy Secretary of State and U.S. ambassador to Azerbaijan, Matthew Bryza, said the solution of Cyprus's problem would provide the most economically attractive export route for Cypriot natural gas as well as for the Israel-Cyprus-Turkey pipeline, which also can elevate Turkey's strategic importance and secure its economic benefits by becoming an energy transit hub
The former Deputy Secretary of State and U.S. Ambassador to Azerbaijan Matthew Bryza said it is incorrect to say that the price drop in natural gas makes it economically infeasible to transport Leviathan gas to Turkey and added his hope that gas export from the Leviathan field would start in 2019. A former senior diplomat Bryza currently serve as a board member of Turcas Petroleum which is the leading Turkish energy investment holding that created Turkey- Israel natural gas pipeline project. Answering to Daily Sabah's questions on pipeline politics Bryza said that thus far, energy reserves have had a minimal impact on regional states' relations. Underlining that if the Cyprus problem solved Turkey would provide the most economically attractive export route for Cypriot natural gas Bryza added that in this case an Israel-Cyprus-Turkey pipeline, would also provide a powerful mechanism for building a new strategic triangle among Turkey, Cyprus, and Israel.
Commenting on the TANAP project he said that when the Southern Corridor reaches its full capacity its economic and geopolitical significance for both Turkey and the EU will be much larger and he said that then this project will become a serious alternative to Russian gas. Regarding the KRG gas Bryza asserted that eventually, and inevitably, KRG gas will reach Turkey while drawing attention to the current obstacles to the project that poses by Daish, the PKK and other terror organizations in the region.
Answering to question whether Turkey can become an energy hub that determines the petroleum and natural gas prices he said that Turkey can elevate its strategic importance and secure economic benefits by becoming an energy transit hub, thanks to the several pipelines. Bryza said provided that Turkey advances its longstanding plans to liberalize its natural gas market, Turkey can also become a trading hub for natural gas, however he drew attention that It is unlikely that Turkey could become a trading hub for petroleum, given that oil prices are more or less determined globally rather than at individual trading hubs.Ali Ünal: Following the normalization of relations between Turkey and Israel, a possible natural gas pipeline project to carry Israeli gas to the European market via Turkey has come to the fore. Could you provide some information on the latest developments regarding this project? When do you think Israeli gas would arrive in Turkey?Matthew Bryza: Several companies in both Turkey and Israel have been exploring the commercial possibility of such a pipeline since the discovery of Israel's giant Leviathan natural gas field in 2010. Initially, the progress was slow given the breakdown in Turkish-Israeli relations as a result of the Mavi Marmara incident. Interest grew, however, with Prime Minister Netanyahu's apology to then-Prime Minister Erdoğan in March 2013. TURCAS energy in Turkey subsequently played a leading role in assembling a consortium of potential Turkish buyers of Leviathan gas, which might also include major European companies. These efforts stalled throughout much of 2015 due to a difficult political debate in Israel about the regulatory regime that would govern Israel's natural gas sector. With those regulatory questions now answered and with the normalization of Israel-Turkey relations, it is now possible to reinvigorate efforts to develop an Israel-Turkey natural gas pipeline. Prime Minister Netanyahu has made clear that Turkey provides Israel's preferred export route for its natural gas, while President Erdoğan has said such a pipeline could and should play a central role in the further improvement of Turkey-Israel relations. It is now time for the companies and countries to get back to work.
The private companies developing the Leviathan field Nobel Energy from the U.S. and Delek from Israel, hope to begin their gas exports in 2019.
AÜ: How would you comment on claims that the project of transporting Leviathan gas to Turkey is no longer feasible due to the price drop in petroleum and natural gas?
MB: It is incorrect to say that the price drop in natural gas makes it economically infeasible to transport Leviathan gas to Turkey. On the contrary, the companies developing Leviathan view Turkey as a highly attractive export route from a commercial perspective. The key question is, will there be sufficient demand for Leviathan gas in Turkey at the right time to meet the investment schedules of Noble and Delek. My guess is, the answer will be yes, especially if the price of Israeli gas will remain less than the current national price in Turkey, but higher than the price in Israel, as well as in Egypt, which is the most promising alternative to Turkey for Leviathan's exports.
AÜ: There have also been claims that the natural gas from Cyprus could also be included in the previously mentioned project, what are your thoughts on this?
MB: There is great hope in both Cypriot communities that there will be a comprehensive settlement of the Cyprus Question by the end of 2016 that will reunify the island into a bi-zonal, bi-communal federation. There is, however, still a considerable amount of work ahead to bridge the two sides' remaining differences. If such an agreement is reached, then, Turkey would provide the most economically attractive export route for Cypriot natural gas.
An Israel-Cyprus-Turkey pipeline, which makes landfall in Cyprus, would also provide a powerful mechanism for building a new strategic triangle among Turkey, Cyprus, and Israel. But, again, this is all contingent on a comprehensive settlement of the Cyprus Question.
AÜ: To continue on with Eastern Mediterranean, a significant amount of natural gas reserve was discovered last year around the offshore of Egypt. In your opinion which route would this reserve be exported from in order to reach the global market?
MB: Most of the gas that will be produced from Egypt's Zohr field will be used to satisfy Egypt's domestic natural gas demand. Only after those domestic supply requirements are met will the Egyptian Government permit any of Zohr's gas to be exported. Those exports will be in the form of liquid natural gas (LNG) from Egypt's existing but underutilized LNG export terminals to buyers anywhere in the world, but most likely to Europe.
AÜ: How do energy reserves within the Eastern Mediterranean affect the bilateral relations amongst regional states? The energy dimension of the normalization between Turkey and Israel has been widely discussed. Do you think that the energy factor could also contribute to the resolution of the ongoing dispute at Cyprus Island and to the normalization between Turkey and Egypt?
MB: Thus far, Eastern Mediterranean energy reserves have had a minimal impact on regional states' relations. The most visible impact so far has been to help catalyze two sets of triangular relations, namely, Greece-Cyprus-Israel and Greece-Cyprus-Egypt, under which the country's' national leaders have met a few times but not reached any significant and concrete achievements.
The future nevertheless holds great promise in this regard. Israel has a chance to use natural gas exports to strengthen its relations not only with Turkey, but also with Jordan, the Palestinian territories, and Egypt. While Ankara may not currently welcome an improvement in Israel-Egypt relations, the Israeli Government is eager to see this happen. The EU and U.S. would strongly support Israel natural gas exports in all of these directions, especially toward Turkey, provided the various issues related to Cyprus could be successfully managed.
I don't believe political issues are well enough aligned at this point to enable energy to play a positive role in normalizing Turkey-Egypt relations. Eventually, however, if and when the Turkish Government grows comfortable with its Egyptian counterpart, relatively cheap exports of Egyptian LNG to Turkey could play a positive role in strengthening bilateral relations.
Similarly, energy can contribute to resolution of the Cyprus Question provided energy-related issues are raised in the political negotiations only after the outlines of a Cyprus settlement are in view. If raised too soon, the issue of exploration, production, and export of Cypriot natural gas will prove to be a divisive factor. This is in fact the case right now with the Cypriot decision to proceed with the third round of licensing for offshore exploration blocks south of the island, though these current tensions seem to be being managed effectively.
AÜ: The KRG is also another neighbor to Turkey with significant natural gas reserves. What do you think of the projects aiming to export KRG (South Kurdistan or Iraqi Kurdistan) gas into Turkey?
MB: Eventually, and inevitably, KRG gas will reach Turkey. Indeed, Turkey is by far the most logical export market for KRG gas, and one where prices will likely be significantly more attractive than in Iraq. Several years ago, I had the honor to co-chair the Turkey-U.S.-Iraq Working Group on Iraqi Gas Exports to Turkey, together with then-Energy Minister of Turkey Hilmi Güler. During that period, Ankara viewed KRG gas exports into Turkey as a means to build a positive strategic dynamic in its relations with all of Iraq, as well as with Iraqi Kurds. Today, implementing that policy faces serious obstacles in northern Iraq, including PKK terrorism, Iraq's war against ISIS, the KRG's budgetary crisis (resulting in non-payment of some obligations to energy producing companies), and the KRG's dispute with the Iraqi federal government in Baghdad over the KRG's right to make its own decisions on energy exports from the territory it governs
AÜ: With Iran entering the international markets do you think that there could be new agreements on the areas of petroleum and gas between Turkey and Iran? Also, would new pipeline projects come to the fore in your opinion?
MB: With regard to petroleum, Iran is selling its oil into the global market. Thus, no new governmental agreements are required for Turkish entities to buy it. There are still prohibitions in effect under U.S. bilateral sanctions, however, against any U.S. person conducting business within Iran's energy sector, including U.S. banks. This might pose a problem if a Turkish entity sought trade financing from a financial institution that has a correspondent banking relationship with a U.S. counterpart.
With regard to natural gas, Iran is already a high-priced supplier to Turkey. Hence, for purely economic reasons, Turkey has sought to attract gas from other suppliers whose price is cheaper than Iran's (as well as Russia's).
Should Turkey decide to import additional quantities of Iranian gas, expansion of Iran's existing north-south pipeline system would be required to deliver that gas to Turkey. Another option might be to import Turkmenistani gas via Iran using existing infrastructure.
AÜ: TANAP which will transmit gas from Azerbaijan to Europe through Turkey still continues. What would be the eco-political effects for Turkey and Europe once the TANAP project is finalized?
MB: TANAP, together with the South Caucasus Pipeline Expansion (across Azerbaijan and Georgia to Turkey) and the Trans-Adriatic Pipeline (from Greece across Albania and under the Adriatic Sea to Italy), will comprise the EU's Southern Corridor. Initially, this pipeline network will be of considerable economic significance for Turkey by providing the cheapest natural gas supply for Turkey, as well as around 13 percent of the natural gas supplied by Russia, thereby providing Turkey significant negotiating leverage over Gazprom.
Over time, however, the volume of gas delivered by the Southern Corridor is expected to double. When this occurs, the Southern Corridor will be of much larger economic and geopolitical significance for both Turkey and the EU, providing a serious alternative to Russian gas. This is precisely why Moscow has worked so hard to block the Southern Corridor, including by proposing Turkish Stream.
AÜ: Following normalization between Turkey and Russia, the Turkish Stream project has begun to be discussed again. How realistic do you believe the Turkish Stream project to be? Would implementation of this project cause new tensions between Turkey and the Western community?
MB: To become realistic, Turkish Stream would require that: (1) Gazprom agrees to Ankara's demand for a steep price discount, which Gazprom previously refused, leading to the suspension of the project one year ago; (2) The EU lifts in sanctions on Russia in response to Russia's invasion of eastern Ukraine and annexation of Crimea, thereby clearing the way for Russian gas to enter the EU via Turkish Stream; or (3) The project is scaled back significantly to meet expected growth only in Turkish demand without exports to the EU.
If conditions 1 and 3 are fulfilled, but the EU does not agree to accept Russian gas from Turkish Stream, the EU would not be able to complain much about Turkey reaching a bilateral gas supply deal with Russia, given that the governments of Germany, France, and the Netherlands and several of their companies support the North Stream-2 project.
AÜ: It is evident that Turkey is yet to be a complete energy hub despite having immense energy producers around it. What do you think Turkey should do to become an energy hub that determines the petroleum and natural gas prices?
MB: Turkey can elevate its strategic importance and secure economic benefits by becoming an energy transit hub, thanks to the pipelines that already deliver oil from Azerbaijan and Iraq and natural gas from Azerbaijan, Russia, and Iran. Moreover, these transit links will expand in coming years, and hopefully include natural gas from northern Iraq, the Eastern Mediterranean, and Turkmenistan, as well.
Provided that Turkey advances its longstanding plans to liberalize its natural gas market, Turkey can also become a trading hub for natural gas. But, this can happen only if market forces of supply and demand determine price.
It is unlikely that Turkey could become a trading hub for petroleum, given that oil prices are more or less determined globally rather than at individual trading hubs.
Source: http://www.dailysabah.com/diplomacy/2016/10/03/israel-cyprus-turkey-pipeline-would-provide-new-strategic-triangle-says-former-us-ambassador-bryza
