Turkish Firms Discussing Vast Gas Purchase From Leviathan

Deal to supply Turkey would dwarf agreements already signed with Cyprus and Palestinians.

Courtesy Albatross

Turkish energy holding company Turcas Petrol said on Tuesday is negotiating, together with another Turkish company Enerjisa and the German utility E.ON, to buy natural gas from Israel’s Leviathan field.

In a filing with the Istanbul Stock Exchange, Turcas said the gas would serve Turkish markets.

No further details were mentioned and none of the partners in Leviathan has reported any talks.

The sides are apparently discussing a 20-year contract for about 7 billion cubic meters of gas a year, a deal which would be worth billions of dollars over its lifespan.

A contract with Turkey would mark a major breakthrough for Leviathan, which is seeking export markets for its immense reserves of gas, estimated 538 BCM. Although the Leviathan partners have signed a contract with Palestine Power Generation Company to sell some 4.75 BCM of gas over 20 years and are bidding to sell gas to Cyprus, Turkey represents a far bigger market.

Political tensions between the two countries, however, have clouded efforts to reach a deal. The two sides have yet to patch up differences over the 2010 event when the Turkish ship Mavi Marmara was raided by Israeli commandoes while trying to break Israel’s blockade of the Gaza Strip, leaving nine dead.

However, last September Matthew Bryza, a Turcas Petrol director and a former member of the U.S. diplomatic corps, said the company was ready to lay the pipeline to connect Leviathan to Turkey. He said Turkish companies were prepared to take on the political risks involved in the project.

The gas would like be delivered by undersea pipeline from Leviathan, which is located in deep waters off Israel’s Mediterranean coast. The pipeline, which is likely to cost somewhere between $2.5 billion and $4 billion to develop, would be financed by buyers. For the energy-hungry Turkish market, gas delivered by pipeline is a lower-cost alternative than getting it from more distant sources delivered as liquefied natural gas.

The talks come as the Leviathan partners − which include Israel’s Delek Group and Ratio Oil as well as the Texas company Noble Energy − are seeking to wind up an agreement to bring Australia’s Woodside Petroleum in as a partner. Woodside would take a 25% stake in the field for some $1.25 billion.

Apart from helping to finance the field’s development, the Australian company’s main contribution would be its expertise in LNG. But pipeline-based contracts like Turkey’s would sideline Woodside’s role.

Turcas Gas, which deals in natural gas imports and wholesaling, has been seeking new sources from neighboring countries, according to the company’s website. Its partner in the talks is Enerjisa, an electric power company half-owned by Turkey’s Sabanci Holding and by the German utility E.ON.

Shares of the Leviathan partners traded quietly Wednesday. Ratio was up 2.7% to 52 agorot (15 cents) in late trading on the Tel Aviv Stock Exchange. Avner and Delek Drilling, two units of Delek Group, were up 0.6% at 3.50 shekels and 0.3% at 20.04 shekels, respectively.