11 Nisan 2013 Perşembe

Exploring Potential Export Markets for Israeli Gas

Karen Ayat          Natural Gas Europe

Start of production at Tamar
Natural gas began flowing from the Tamar field off Israel's Mediterranean shores on Saturday 30 March 2013 producing 300 million cubic feet per day. When combined with the existing Mari-B volumes of 200 million cubic feet per day, the current daily sales are nearly 500 million cubic feet per day and expected to reach 700 million by the end of 2013. The Tamar field was discovered by Noble Energy in 2009 and was the largest deepwater natural gas discovery in the world in 2009 estimated at the time to contain 9 tcf of gas. Noble made a new estimation upping the gross resource estimate of Tamar to 10 trillion cubic feet (Tcf) as a result of development drilling and continued reservoir analysis and modeling. The updated estimate was confirmed by an independent assessment conducted by Netherland, Sewell & Associates, Inc. 

Previously discovered Mari-B
Mari-B was the first offshore natural gas field in the State of Israel discovered by Noble in March 2000. Noble started gas production from the Mari-B field in 2003. Despite its relatively small size (containing around 1 tcf of gas), the Mari-B field was not only a momentary relief for Israel but played a tremendous role in enabling Israel to shift from heavy fuel oils and coals to gas for its electricity production. Soon after, Israel began importing Egyptian Gas to supplement its local Mari-B gas and meet domestic demand. By the end of 2010, Israel relied on gas for around 40 per cent of its electricity supplied almost equally by its own Mari-B field and Egypt. 

The Leviathan 
Noble made another discovery in 2010, the Leviathan, located roughly 130 km west of Haifa and estimated to contain around 18 tcf, according to a statement by Noble on March 6. Noble Energy operates Leviathan with a 39.66% working interest; Delek Drilling holds 22.67%; Avner Oil Exploration holds 22.67%; and Ratio Oil Exploration holds the remaining 15%. The Leviathan could start supplying gas by 2017. 

Tamar boosts Israel’s economy
The Tamar field could boost Israel's GDP by 1% and reduce the price of electricity for Israelis. With the Tamar field alone being enough to satisfy Israeli consumption for two decades and production of the Leviathan expected to commence in 2017, Israel is on its way to become self-sufficient in terms of its energy needs and one of the most gas-reliant nations for electricity production in the industrialized world. Most importantly, after having satisfied domestic demand, Israel is likely to become a net gas exporter. Targeted export markets will highly depend on the political feasibility of the routes needed to transport its gas. Neighboring Jordan, Europe and Asia are all possible customers. 

Given its geographic proximity, Israel is very likely to export some of its gas to Jordan. Israel and Jordan are not only neighbors, they also share a common gas history: they both relied on Egyptian gas to satisfy their respective energy needs and they both suffered from the disruption in the flow of the gas when Mubarak was forced from office. While Israel moved closer to becoming energy independent, Jordan looked for other suppliers. The kingdom is considering building a major LNG facility in Aqaba on the Red Sea to import gas but the project is still years away and will prove costly. Recent secret talks between the two countries might herald an Israeli-Jordanian collaboration. Jordan's Arab Potash Company was recently said to be in contact with its Israeli counterpart through Noble Energy to examine the possibility of importing Israeli gas. While the operation of connecting Israel to Jordan would be low in cost and technically a simple endeavour, Israel will most likely have larger amounts to export and will be also looking at other markets.

The European market is another ‘natural’ option for Israel, due to its proximity. For Europe, it would also make sense to import Israeli gas as a mean of diversifying its gas portfolio from Russian gas. However, Russia is unlikely to loosen its grip over Europe very easily. Gazprom jumped on the opportunity to obtain exclusive rights from Israel to develop an LNG and divert Israeli gas to Asian markets instead. Gazprom is willing to invest in a 5 billion dollars floating LNG facility in return of exclusive rights to purchase and export Tamar LNG. The deal is awaiting a final approval from Israel. On the other hand, exporting gas through a pipeline from Israel to Europe appears to be difficult without Turkey. The original plan of laying a pipeline that would traverse both Cyprus and Turkey is handicapped by the division of Cyprus. An Israeli-Turkish pipeline seems to be a little more likely following the US-brokered Israeli apology to Turkey. However, it might be too soon to say that the two countries have restored complete friendly relations. The acceptance of the apology by the Turks was conditional. Without a change of Israel's policy towards Palestine, an energy collaboration is not certain. In the meantime, cash-strapped Cyprus, who was hoping to pool costs with Israel to export its own gas, is nervous when it comes to a potential Israeli-Turkey energy partnership that would leave it out of the picture. 

Given the complicated regional geopolitics, Asia might hence be the most attractive destination for Israeli gas. Selling gas to Asia at higher prices is of course a motivation and Asia’s growing gap between its demand and its supply constitutes another one.  A further consideration would be the fact the Leviathan partners have signed an initial agreement with the Australian firm, Woodside, to acquire about a third of the rights to the field in order to tap into its liquefaction experience, marketing structure, and capital. Woodside is oriented toward marketing the gas in Asia.

Israel has not yet formulated an export policy: how much gas it will sell abroad, how to ship it and which markets it will serve. Serving Europe will no doubt upset Russia. Another tricky question is how to reach Europe while balancing commercial viability and diplomacy. Cyprus is hoping to pool costs with Israel to build an LNG facility on the island that would supply domestic demand and transport Cypriot gas to export markets. However, cooperating with Cyprus is likely to upset Turkey who is clearly opposed to gas explorations offshore the island without its approval claiming the natural gas resources should benefit both communities (Turkish Cypriots and Greek Cypriots). Israel recently put efforts to restore friendly relations with Turkey and is unlikely to back away given that Turkey’s strategic positioning would be key to transporting Israeli gas to Europe. It is yet unclear whether a potential energy partnership will come to fruition taking into consideration Turkey’s strict conditions attached to its acceptance of the apology. In the affirmative, it is yet to see how their partnership will affect Cyprus’ relationship with Israel. In an ideal world, the most obvious route for Israeli gas would have been to Turkey through Cyprus. However, the division of the island and the tensions between the Cypriots and the Turks challenge the feasibility of this option. In the absence of a Turkish-Cypriot miraculous agreement triggered by common energy interests, Israel will have to choose its friend. And choosing means letting go. 

*Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean 

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