Israel has limited options with its gas exports
Since the major discoveries of gas in the East Mediterranean, especially in 2010, Israel has gone out in all direction to find viable export routes for its gas but with limited results so far.
In 1999, Israel discovered two small gasfields (Noa and Mari) with limited reserves of 1.5 trillion cubic feet (tcf), which are almost depleted now. However, in 2009, Dalit and Tamar fields were discovered with reserves of 0.5 and 10 tcf respectively and were speedily developed to supply Israel with gas after the stoppage of the Egyptian exports in 2012.
The major discovery was in 2010 when Leviathan was discovered about 150 kilometres west of Haifa in what Israel claims to be its Exclusive Economic Zone (EEZ). Its reserves were estimated at 18- to 22-tcf and in 2012 Tanin and Karish fields were discovered to add 3 tcf of reserves.
However, there are claims submitted to the UN by Lebanon stating that Leviathan – or part of it – actually falls in Lebanon’s EEZ and that Israel and Cyprus delineated the maritime borders regardless of Lebanon. The Israeli gas discoveries were essentially made by US company Noble Energy in cooperation with some Israeli companies. (Nobel Energy is active in Cyprus where it discovered the offshore Aphrodite field.) In the meantime, gas consumption in Israel rose from 100 million cubic feet a day (mcfd) in 2004 to 500 mcfd in 2011 and dipped to 200 mcfd in 2012 when imports from Egypt were stopped. In 2015, consumption rose to 800 mcfd with production from offshore fields except Leviathan.
That year, Israel consumed 25.6 and 6.7 million tonnes of oil equivalent of imported oil and coal respectively. Therefore there is more room for gas consumption as Israel tries to reduce its imports and improve its environment.
Leviathan remains undeveloped due to the high investment of about $6 billion needed for its development. At the same time, legal proceedings in Israel prevent the owners from any development as they are said to be a non-competitive group and ruled illegal the government agreement with them despite the approval of the Knesset.
However, the minister of economics is authorised to overrule the courts on the ground of “national security”. But he declined to categorise the agreement as such and resigned, leaving room for Benjamin Netanyahu to become economic minister as well as prime minister and proceed with the deal. Nobel Energy and its partners agreed to restructure and reduce their shares in other Israeli fields, except Leviathan, within six years to help the process.
Most importantly, companies and their bankers are unwilling to develop the field to produce 2 million cubic feet a day without being first assured of a viable export route to make the economics of the development acceptable. Also there is opposition in Israel to export gas and to conserve it as a national resource for future consumption.
Unfortunately, the gas flow in the Arab Gas Pipeline, which supplied Jordan and Syria, stopped in 2012 due to the severe shortage of gas in Egypt, as well as the multiple sabotage to the export junction supplying Israel and the Arab Gas Pipeline. This opened the door for Israel to try and export gas to Jordan.
After long negotiations, which started in 2011 with encouragement from the Americans, Nobel Energy, representing the shareholders of Leviathan, signed an agreement in September with Jordan’s National Electricity Company (NEPCO) to export gas to Jordan. The deal was said to be worth $10 billion (Dh36.7 billion) for a volume of 530 billion cubic feet delivered over 15 years starting in 2019.
Earlier in 2014, Nobel Energy signed a more modest contract with the Arab Potash Company to export 66 billion cubic feet over 15 years at an estimated value of $500 million.
The two agreements received wide opposition in Jordan, including demonstrations, and the establishment of the “Jordanian National Campaign against the Gas Agreement with the Zionist Entity”.
The details of Jordan’s agreement with Nobel Energy are not known, especially with respect to gas pricing over the duration of the agreement. But on the face of it, gas price is high compared to the average current price of $4.21 per million BTU in the European Union during September.
It remains to be seen how much Jordan will pay for the LNG imports when its terminal is commissioned this year. Jordan has an agreement to import LNG from Algeria and gas from Egypt in 2021.
The uncertainty of volume and outlook of exports to Jordan forces Israel to look for other options.
The writer is former head of the Energy Studies Department at the Opec Secretariat in Vienna.