If Israel Has to Rely on Turkey to Buy Its Gas, We Have a Problem

The great Turkish hope has wilted into a stagnant economy ruled by an authoritarian leader, and nobody else is lining up for Israel's gas.

Turkey's President Recep Tayyip Erdogan (front, right) acknowledges the crowd as he arrives at the parliament in Ankara: Turkish lawmakers approved a three-month state of emergency that allows the government to extend detention times and issue decrees without parliamentary approval. The president is wearing a white shirt, green and white tie and dark blue suit with a small Turkish flag lapel pin. June 22, 2016.
STF/AP

No one can fault Energy Minster Yuval Steinitz for the enthusiasm he radiates about Israel’s energy prospects.

If the estimate of 75 trillion cubic feet he has been giving for Israel’s gas reserves in the Mediterranean Sea is true, it puts Israel in the same league at energy giants like Norway and Canada. He envisions Israel turning into a top supplier of gas to Europe. And, he has declared the regulatory turmoil that halted new exploration and production for four years to be over .

Yes, Israel retroactively changed the rules of the game for Noble Energy and Delek Group, but from now on everything is guaranteed.

Steinitz has been on a roadshow this week in London and Singapore, trying to drum up interest in drilling licenses that Israel wants to auction off. His job is to act as celebrity spokesman for Israel Energy Inc.

Much like when Scarlett Johansson told Super Bowl viewers she uses a SodaStream machine, you’re not supposed to believe in absolutely everything said, but to be swept up by the enthusiasm. In that regard, Steinitz did a respectable job of filling the conference rooms. You can’t fault him for his marketing talents.

Energy Minister Yuval Steinitz under a spotlight, talking with the press. Steinitz is wearing a white button shirt with the top button undone, no tie, and a blue jacket. The minister is talking into a yellow and black Reshet Bet Radio microphone and a reporter's cellphone. March 6, 2016.
Mark Israel Salem

Psst, wanna buy some gas?

But whatever Israel’s energy attractions may be, the fact is we’re in a buyers’ market for gas and oil. Energy prices have collapsed over the last two years. In Europe gas costs 50% of what it did at peak levels. 

Unsurprisingly, the number of exploratory wells worldwide fell by half last year and spending this year is expected to be down by as much as half from 2015.

Israel has extra burdens to carry. Our gas is all in deep waters where the costs of drilling and extracting are high; all other things being equal, hard-pressed energy companies these days prefer to explore in cheaper places.

Moreover, no matter what Steinitz says about the new pax regulatoria in Israel, you can understand why energy companies would like more time to pass (and maybe a change of government) before they’re persuaded that Israel will play by its own rules.

But Israel’s biggest problem is finding someone to buy the gas.

The domestic market is small and basically sewn up by supplies from the Tamar and Leviathan fields. Egypt, which once had been a promising export customer, has found giant reserves of its own and could begin production in about a year. All the other nearby export markets are midgets.

Building liquefaction plants and shipping it to distant markets faces stiff political and environmental resistance. Steinitz wants to export to Europe, but so far no on in Europe has shown any real interest.

The last great hope is Turkey. For a long time, that looked unpromising too because Ankara was barely on speaking terms with Israel after the Mavi Marmara raid in 2010. The two countries' rapprochement in June changed that – in fact, gas may have been what finally convinced Ankara to turn friendly after six years – but unfortunately, Turkey itself has changed a lot in the interim.

There was a decade or so when Turkey was a dynamic economy, growing rapidly, industrializing and attracting foreign investment, while serving as a model of how Islam could live side by side with democratic values and the rule of law.

Maybe the country was not all it was cracked up to be even then, but now President Recep Tayyip Erdoğan has effectively dropped all pretense of democracy and the economy is turning sour. 

The failed coup and the crackdown that followed have only made things worse.

For Israel, it means a gas agreement with Turkey is not what it would have been even a few years ago.

Instead of hooking up with a rising economic power ruled by a stable, democratic government, the great Turkish hope is a stagnant economy ruled by an erratic, authoritarian leader. If the Turkish market is going to be the big payoff, it’s hard to imagine anyone gambling the tens of billions needed to explore and develop gas fields and build a pipeline.