Israel’s gas export ambitions yet to find an outlet

Last week I discussed the gas situation in Israel, especially with respect to finding viable export routes. The agreements to export to Jordan may start in 2019, but there are uncertainties especially if the Leviathan field remains undeveloped and if opposition to these agreements remain strong.

Other options flouted by Israel have their problems. Emily Hawthorne, Middle East and North Africa analyst at advisory firm Stratfor, recently said: "There are so many more complications than there are solutions to building the optimal deals in the Eastern Mediterranean."

There are uncertainties about the location and engineering of the export facilities in light of security in the region and disputes about maritime borders. In addition, there is the weakness in the global economy and the decline in gas prices.

When Israel was importing gas from Egypt, it was - shamelessly - suggested that Israel should continue to import the cheap gas and export its own to Europe. But the situation changed in 2012 when the gas line to Israel was blown up many times and Egypt suddenly found itself short of gas. The Israelis considered reversing the flow of the pipeline and exporting gas to Egypt.

The idea was not acceptable to Egypt because Israel went for arbitration to seek compensation for the stoppage of gas exports. Israel won the arbitration case, but tried to incite Egypt by offering to reduce the sum awarded to half if Egypt agreed to import its gas.

The other option was to build sea lines to the two LNG facilities in Egypt in Damietta and Edco by investing $3.5 billion (D2.8 billion) in pipelines, plant modifications and increasing gas production capacity. Perhaps a technically sound option, as Egypt would use some of the gas and the rest would be turned into LNG for export.

Expediting development

But the idea was scuttled by ENI's discovery of the Zor field in Egypt's maritime zone, the largest in East Mediterranean at 30 trillion cubic feet (tcf) of reserves. BP also discovered 5-tcf of gas reserves north of Damietta and both companies are expediting development.

Cyprus came into the picture when Noble Energy discovered its Aphrodite gasfield and the idea was to establish LNG facilities there to process and export Israeli and Cypriot gas. But the limited 7-tcf of Cyprus reserves led to downplaying the idea and Israelis are believed to favour the LNG plant on their side.

Cyprus' need for gas may be even bigger than what its only field can provide.

Then came the East Mediterranean Pipeline, an offshore/onshore line to carry 530 billion cubic feet of gas annually to Europe passing through Cyprus and Crete and onward to the Greek network and the Poseidon pipeline of Italy.

The company IGI Poseidon was formed to promote the 1,700 kilometre long project, costing $5.5 billion and taking eight years to build. All these numbers are against the project economics, which makes its progress doubtful despite European Union's feasibility report, its support to reduce dependence on Russian gas and supply gas to new regions in Greece.

But the project never went beyond the preliminary design.

Israel's export of gas to Turkey and then to Europe is more in the news these days after it agreed to pay compensation and apologised for its actions in 2010 killing nine people on the Mavi Marmara destined for Gaza with humanitarian aid.

In reality, Turkey always welcomes the export of hydrocarbons through its territories to improve its security of supplies and generate revenue from transit fees and, perhaps, even a discount on the Turkish take of these hydrocarbons. It is not strange then that the gas export is included in the understanding between the parties as soon as relations thawed.

Private investors

The Turkish daily Hurriyet said recently that the Israeli National Infrastructure, Energy and Water Minister Yuval Steinitz said that this could happen by 2019 and that the pipeline could carry other East Mediterranean gas as well. He added that the project could cost $2 billion, financed by private investors and with the blessing of Turkey and Israel.

There is opposition in Israel to the project because of "Islamic Turkey". And the project could be derailed if the division of Cyprus is not resolved, especially as Turkey objected strongly and sent military ships to deter exploration for gas and delineation of maritime borders without coordinating with the government on the north of the island.

The dispute with Lebanon about the maritime border could be another reason for Turkey not to give its final approval. But the biggest stumbling block is the aversion of investors to go forward in a region full of problems and at a time when gas prices have fallen by about 50 per cent.

Major oil companies are unlikely to approach such a project for fear of jeopardising its relations with Arab producers.

Given the above, we are unlikely to see the development of the Leviathan field and its gas exports soon. It takes a lot more than the discovery of a gasfield for Israel to cross the Rubicon.

Source: Gulfnews