On Monday, Israel’s High Court cleared the way for Israel to export 40% of its new natural gas bonanza after rejecting petitions that challenged the government’s export plan. The Israeli government harbors high hopes of reaching $60 billion in profits over the next two decades from natural gas exports, and so the High Court’s decision is being celebrated as paving the way for an economic windfall. The problem is that there are some very big and intractable regional issues that have to be settled before Israel sees even a shekel from gas exports, and the prospect for all of this coming together is quite slim. If anything, Israel’s natural gas fields are going to end up sparking competition and regional destabilization rather than the opposite.
There are two ways for Israel to export its natural gas. The first is via pipeline to Turkey and hooking up with the planned TANAP or TAP pipelines in order to send Israeli gas to the rest of Europe. The prospects of Israel and Turkey cooperating on a pipeline deal at this point are laughable when the two sides cannot even agree on something as basic and simple as compensation for the Mavi Marmara deaths, not to mention the most recent unpleasantness between the two countries. Let’s assume for a moment though that cooler heads are able to prevail and mutual economic interests override the basic domestic politics of both countries, there is still a thornier problem of geography. A pipeline from Israel to Turkey has two possible routes. The first runs through Lebanon and Syria, which is a non-starter for all sorts of obvious reasons. The second route is undersea and has to travel through Cyprus’s exclusive economic zone. Given the animosity between Turkey and Cyprus and Turkey’s adamant insistence that is does not and never has occupied any part of Cyprus, reconciliation between these two parties over an issue that has been dubbed a diplomats’ graveyard is not on the horizon. It is true that there are many good reasons for a deal to happen, from the fact that there is a lot of money at stake to the fact that Turkey is completely isolated on the Cyprus issue and is the only country in the world that even recognizes the Turkish Republic of Northern Cyprus as an independent state, but that doesn’t mean that movement is imminent. Greek Cypriots overwhelmingly rejected a painstakingly negotiated federal model in 2004, and there is no reason to think that opinion on this has changed. What this means is that a pipeline, which would be the most cost-effective and easiest solution, is out for now.
The other way for Israel to export its gas is to liquify it and ship LNG to Turkey and other destinations. This comes with its own set of challenges as well. The first is that liquifying natural gas is an expensive process that reduces profit margins as compared to shipping it via pipeline. On top of the process itself, it requires building an LNG terminal that takes approximately 3-5 years to build and costs somewhere between $5 billion and $10 billion, which cuts into profits even further. An LNG terminal is unlikely to be built in Israel itself due to legal and environmental challenges, which again leaves Cyprus as the natural partner, but absent reconciliation between Turkey and Cyprus, shipping LNG to Turkey from a Cypriot LNG terminal is likely off the table. Without a Turkish market for gas, Israel is not going to expend the time and resources to build a LNG terminal in Cyprus to then have it essentially be bricked. Even assuming that Turkey and Cyprus are able to patch things up and Israel goes the LNG route, the security challenges posed by protecting an Israeli LNG terminal that is in Cyprus rather than in Israel and then protecting Israeli tankers plying the waters of the Eastern Mediterranean are enormous. Israeli ships carrying Israeli natural gas are immediately going to become an attractive target for all manner of jihadi and terrorist groups, and the Israeli Navy does not now have the capacity to protect such a potentially large venture.
So the bottom line is that a boom in natural gas exports is not assured by any means. No matter which way Israel turns, the path to huge profits from natural gas is complicated by geopolitics that have so far proved immune to easy resolution. In the short term, the answer is likely to send natural gas to Jordan, which will be profitable to a limited extent since Jordan is not a very big market. Another cheap alternative with much larger potential is to export to Egypt, but despite Energy Minister Silvan Shalom’s insistence that this avenue is open, the Egyptians claim that they have no interest in buying Israel’s natural gas.
Looking at the bigger picture, Israel’s long term problem may be more serious than simply not having a viable market for its exports. Turkey and Egypt both project very high growth in energy demand with no real energy resources of their own at the moment, and they are sitting next to countries – Israel and Cyprus – that are resource rich and with whom they do not have great relations. In addition, there are claims on Eastern Mediterranean gas fields being made by Lebanon and by the Palestinians in Gaza, not to mention Northern Cyprus’s claims to the fields claimed by the Cypriot government. How these tensions will be resolved is unclear and anyone’s guess, but a very combustible situation is developing, and the idea of major resource conflict at some point is not all that far-fetched. Should the Israel-Turkey-Cyrpus triangle not get resolved to each party’s relative satisfaction, the Eastern Mediterranean may very well become a lot less placid.
Ottomans and Zionists 
There is little or no demand or this gas in Europe with European gas demand projected to be flat for a least a decade or more as well as alternative gas availbale from a host of West African locales as welll as both conventional and unconventional gas in Algeria.The market clearly lies in Egypt, Jordan and the West Bank following creation of an independnet Palestine or god forbid having it feed into a GCC grid once it is completed..
If the Israelis are intent on making $60 billion over 20 years from gas exports, can they do so relying on Egypt, Jordan, and the West Bank alone? In your view, do they have any viable options for exporting to Asia, where the market is much bigger?
Turkey relies on Iran and the Russian Federation for its gas needs. Additionally it has significant reserves of shale gas and an improving technology to extract it.
Israel is the last place it will look to.
Actually, Turkey is getting bilked by Russia and Iran, who are charging Turkey about 1.5 times the market price for natural gas. Talk to any Turkish government official and they will tell you that the biggest economic challenge they face is securing supplies of lower cost energy since their current account deficit is almost entirely driven by energy imports. The last thing Turkey wants to do is continue to rely on Russia and Iran for gas.
A resource war seems possible, but no more likely than reconciliation between the different parties driven by mutual interest. There are huge disincentives to either Turkey or Egypt to attack Israel or Cyprus – they can kiss U.S. military support and cooperation goodbye if they attack Israel, and if Turkey tries to attack Cyprus there is a UN peacekeeping force watching. Not to mention Cyprus is an EU member state. That won’t go over well at all.
Barring reconciliation, if Israel builds an LNG facility – whether in Israel proper or in Cyprus – it can ship the gas anywhere in the world, not just to Turkey. As long as natural gas prices are high enough in places that have regasification plants, Israel can make a profit.
Even if the Israelis did build an LNG plant, though, they probably wouldn’t make $60 billion in 20 years. With competition in the emerging global LNG market from other suppliers like the U.S., Australia and East Africa, profit margins are going to narrow a lot beyond the short-term.
A resource war seems possible, but no more likely than reconciliation between the different parties driven by mutual interest. There are huge disincentives to either Turkey or Egypt to attack Israel or Cyprus – they can kiss U.S. military support and cooperation goodbye if they attack Israel, and if Turkey tries to attack Cyprus there is a UN peacekeeping force watching. Not to mention Cyprus is an EU member state. That won’t go over well at all.
Barring reconciliation, if Israel builds an LNG facility – whether in Israel proper or in Cyprus – it can ship the gas anywhere in the world, not just to Turkey. As long as natural gas prices are high enough in places that have regasification plants, Israel can make a profit.
Even if the Israelis did build an LNG plant, though, they probably wouldn’t make $60 billion in 20 years. With competition in the emerging global LNG market from other suppliers like the U.S., Australia and East Africa, profit margins are going to narrow a lot beyond the short-term.