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.
Jordan
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.
Europe
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.
Asia
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.
Conclusion
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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