The Turkish conglomerate Zorlu Group has been working in recent months to convince the Israeli government and the Leviathan gas field partners to approve energy exports to Turkey, TheMarker has learned.

Zorlu's plan is to lay an undersea pipeline from the Leviathan field 130 kilometers off Haifa to Turkey's south coast. The pipeline would deliver between 8 billion and 10 billion cubic meters of gas annually.

The Turkish firm's proposal could be attractive as a cheap way of delivering large amounts of gas to a major customer. But the strained ties between Jerusalem and Ankara pose considerable obstacles, not to mention risks.

Zorlu, a family-owned company, has interests in textiles, communications, energy and real estate (see picture), and is considered one of Turkey's biggest consumers of natural gas. In Israel, it owns a 25% stake in Dorad Energy, which is developing a power plant in Ashkelon. It also has a 42% interest in cogeneration projects being developed by Edeltech Group at the Makhteshim Agan plant in Ramat Hovav and other sites.

The Leviathan field, Israel's biggest, contains an estimated 425 billion cubic meters of natural gas. Leviathan's partners - Delek Group and Noble Energy - say the smaller Tamar field will produce enough gas to supply all of Israel's needs for the coming years and want to export all the Leviathan gas.

A pipeline to Turkey explored by the partners over the two years, alongside proposals to build a pipeline to Greece or Egypt or export it as liquefied natural gas.

The Turkish option was rejected because of the deteriorating relations between the two countries. But the other options have become less attractive as well, with Greece's economic crisis worsening and the cost and engineering challenges of LNG proving difficult.

If Ankara were to agree to pay $9 per million British thermal units, selling to Turkey would be more lucrative for the Leviathan partners than selling it at $12 to $13 BTU as liquefied natural gas to China.

The political problems of exporting to Turkey involve more than bilateral relations. Industry sources say an undersea pipeline would have to pass through the economic zones of Lebanon and Syria. Second, sales to Turkey would come at the expense of Russia's dominant position as a gas exporter to Turkey and Europe.

Entering the European market would threaten the state-owned Russian energy company Gazprom, which had sought a stake in Leviathan but lost out to Australia's Woodside. Gazprom and Moscow would be likely to pressure Turkey not to import Israeli gas.

A Turkish deal would reduce the role of Woodside as a partner in Leviathan. The company has agreed to pay $2.5 billion for a 30% stake, but its value is its expertise in LNG and ties to the China market, neither of which would be relevant.

The Foreign Ministry recently held discussions on gas exports to Turkey from Leviathan, but a spokesman for the Prime Minister's Office yesterday denied reports that an aide to the prime minister, Harel Locker, had been in Turkey to explore a deal.

Open gallery view

Open gallery view Zorlu is also a giant in real estate: Pedestrians by the huge 65,000 square-meter business center it's building in Istanbul. Credit: Bloomberg