In the last few months, Israel has signed a number of agreements and memorandums of understanding (MOUs) to export gas to certain Middle Eastern states at a time when regional states are facing a number of gas shortages. Israel, on the heel of a number of Middle Eastern states, is enjoying large resources of natural gas which could help it become a regional hub for exporting. Israeli gas is helped by the fact that a number of regional powers, such as Turkey, have resumed normal relations with Israel.
Despite some success in this regard, Israel’s plans to export gas have hit a number of geopolitical, economic, and security hurdles that could prevent it from becoming a regional exporter in the near future.
Regional Movements
Some Middle Eastern states have moved to conclude a number of long-term agreements with Israel regarding the export of gas due to the following factors:
1. Increased regional demand: in the Middle East, natural gas has become a primary source of energy and it accounted for more than 50% of the energy requirements of the region in 2012.
At a time where the electrical needs of the industrial sector have become geared towards gas, the US Department of Energy expects needs to increase 2.5% annually from 2012-2040, growing from 2026.65 trillion cubic feet in 2012 to 2068.88 trillion cubic feet in 2040.
2. Diversifying energy needs: in light of the limited energy resources in some regional states, as well as the increased political differences between exporting and importing nations, importing states have decided to diversify their energy needs to include gas resources. Turkey imports almost half of its natural gas needs, 48.4 billion cubic feet a year, from Russia. This trade occurs notwithstanding, the fact remains that economic relations between both countries is tense. Despite this tension, Russia declared a lifting of sanctions on Turkish goods in June 2016, which is what pushed Turkey to attempt to diversify their energy needs.
3. Taking quick advantage: Israel is one of the few Mediterranean states that quickly took advantage of their gas reserves, which currently stands at 39 trillion cubic feet. Early on in 2004, Israel began pumping from its field at Mary Be, which has a proven reserve of 1.5 trillion cubic feet. The rest of the Israeli gas reserves are distributed between the fields of Tamar and Leviathan, as well as a number of other smaller fields.
The Tamar gas field has a proven reserve of 10 trillion cubic feet and Israel started to export from it commercially in 2013.
The Israeli government has revised the agreement on the Leviathan field, which has a reserve of 17.5 trillion cubic feet, between the American company Noble Energy and the Israeli company Deleik. The agreement now includes a clause pertaining to the investment of the gas in that field. Over the last two years, this agreement has received criticism from the Israeli Agency to Combat Monopolies and the Israeli Supreme Court over the development of the field, which related to the capability of amending the clause in the contract relating to the development of the field. These legal bodies went so far as to accuse the companies of monopolizing this agreement.
Intensified movements
Israel intensified its diplomatic and political endeavors to reinforce their ambitions in order to become a regional hub for exporting energy in the Middle East, while simultaneously benefiting from endeavors to improve relations with its neighbors in the following manner:
1. Normalizing relations: in June 2016, Israel and Turkey reached a settlement regarding their relations after a near freeze in relations for over 6 years, due to attacks by the Israeli army on the Mavi Marmara ship in the Freedom Flotilla, which had intended to break the siege on Gaza in 2010.
The settlement between both countries paved the way for Israel to pay 20 million dollars to each of the victims of the Mavi Marmara in return for a full pardon of Israel.
In this regard, both sides agreed in October 2016 to increase cooperation in the energy sector through a gas pipeline that would connect both countries and supply Turkey, and subsequently Europe, with gas. The Israeli energy minister welcomed his country’s involvement with Turkish companies in the Israeli energy sector.
2. Regional coordination: Jordan and Israel have taken serious steps towards the completion of a joint regional agreement in the energy field. In this respect, both the Jordanian National Electrical Company and the American company Noble Energy, which works the Leviathan field in Israel, signed a final agreement in September 2016 to supply Jordan with 8.4 million cubic feet of natural gas for 15 years. The agreement will take effect in 2019, and will supply gas from the Leviathan field at a total cost of 10 billion dollars. The agreement also includes the creation of a gas pipeline to provide both Jordan and Israel with gas.
Another potential deal, as of September 2016, is in coordination with the Dutch government and aims to supply the Gaza strip with a natural gas pipeline. This could represent a lifeline to the people of Gaza, who have been struggling with rationed energy from Israel over the last few years.
This declaration was preceded by an agreement between the Israeli government and the Palestinian Authority in 2014 to buy 4.75 billion cubic meters of gas and give it to the Palestinian Authority over a period of 20 years. The gas would come from the Leviathan field at a total cost of 1.2 billion dollars. This agreement was, however, frozen due to the Palestinians cancelling the agreement in March 2015.
3. A Mediterranean axis: in January 2016, during a trilateral summit between Israel, Greece, and Cyprus, the three countries stated their desire to proceed with the implementation of a plan to transfer Israeli and Cypriot natural gas to Greece. This would make Greece the export hub of natural gas from the Mediterranean to northern and western Europe. These agreements included negotiations with Cyprus to build an Israeli facility to liquefy gas near the Cypriot city of Limassol.
Extended Challenges
Israel faces a number of challenges in trying to extract and export natural gas resources to its neighboring states and Europe, mainly due to the following issues:
1. Geopolitical challenges: the passing of natural gas deals between Israel and the Middle East faces a number of difficulties that can hinder its implementation. This is mainly due to the popular refusal of any deals, as was seen in September 2016 in Jordan, to import gas from Israel. There are also issues with naval boundaries in the Mediterranean, which has caused issues between Lebanon and Israel. These upsets have delayed the further exploration and drilling of natural gas fields.
In response, Israel has charged unit 13 of the Israeli navy with the protection of these fields as well as deploying a missile defense system on board its ships to intercept and protect their gas drilling operations in the Middle East. Added on to this is the fact that Israel may find difficulty with Turkey in extending a sea gas line, mainly due to Turkish – Cypriot tensions, and the fact that Israel does not have enough guarantees from Greece to begin undertaking such as step.
2. Regional competition: it seems that the regional market is becoming saturated with recently partially discovered natural gas reserves. According to a geological survey carried out by the US for the Eastern Mediterranean, which included Israel, Cyprus, Lebanon, Syria and Egypt, total natural gas reserves in the region could reach up to 122 trillion cubic feet.
These discoveries spread out amongst the five aforementioned states means that there will be fierce competition between the exporters to reach out to the market. Hence, developing newly discovered natural gas fields in the Mediterranean, such as the Egyptian field Zahr, could hinder Israel’s plans to export to regional states.
3. Economic viability: the investments into gas for the time being appear to be limited to a number of considerations. The first and most significant is the drop in gas prices in 2014 reaching 4 and 6 dollars for every million thermal units, which in turn has affected the attractiveness of investing in the oil and gas sector. Second, the high costs of extracting natural gas from deep water fields in Israel has pushed up the costs of investment, for instance in the Leviathan field, to over 6 billion dollars.
Third, there are alternatives to deep sea gas, such as the recently discovered gas inside rocks. Some estimates note that Jordan has nearly 61 trillion cubic feet of such gas. This will encourage some countries to look for alternative energy sources such as nuclear, solar and wind.
To conclude, it can be said that Israel is working steadily towards exporting natural gas to certain regional states, granted that the political and economic pressures do not hinder its progress given the timeframe it has set out.
