Selling Israeli Natural Gas: “It's Complicated”
Presenting a very complex chart outlining the various options for selling Israeli natural gas at the Frankfurt Gas Forum, Gina Cohen, Energy Expert, considered the technical, commercial or political aspects of each option. “What trumps what?” she asked.
One option was pipelines - to the Palestinian Authority, to Jordan or Egypt, about which she commented: “These are in Israel's immediate neighborhood. Very short distance pipelines.”
In the order of complexity, politically she said the Palestinians were the easiest customers, Jordanians second and then the Egyptians. Any complications, she said, only emerged on the buyers' side. “Israel is very keen on being able to influence our immediate neighbors. It's very difficult for the buyers to be able to agree to buy Israeli gas,” she explained.
The second option she said, was a pipeline to Turkey. Other options were LNG, located either in Israel or in Cyprus, or FLNG.
A pipeline to Turkey via Cyprus was one option, being promoted by Delek and Noble. “They are very interested in trying to get into the Turkish market,” commented Ms. Cohen, who added that the pipeline was not difficult technically and would enable Israel to get gas to market very quickly.
“The main hurdles are the geopolitical hurdles of trying to go through the EEZ of Cyprus,” she said, noting that according to a law from 1982 made it very difficult to get the pipeline to Turkey; getting gas on the Turkish market was also tricky, according to her.
“I understand that Turkey is very interested in getting a diversity of supplies, relying currently on 60% of supplies from Russia and 20% from Iran. It will be interesting for them to get gas from East Med,” she said.
A second option was a pipeline to Greece. Because of the depth and length, however, it could be very expensive, while capacity would likely only reach 8 BCM. “The pipeline would cost as much as an energy facility, but then have less flexibility.”
The main benefit of LNG, said Ms. Cohen, was flexibility, while pipeline signaled a commitment.
“If you're going to spend the same amount of money you're better off with the flexibility of an LNG facility,” she said.
On that front, she said that Israel's options included LNG on the shore of the Mediterranean in Israel, but “not in my backyard” sentiment would be a big obstacle for developers to surmount.
She recalled, “Israel was really strongly opposed to even the Tamar field coming into the country onshore, even for local consumption. It's going to be even more strongly opposed to have a huge facility for export.”
An LNG facility in Cyprus was a very good option, according to Ms. Cohen.
She explained: “The Cypriots need gas; Israel needs a facility, so there are definitely areas of synergy here. However, no country has ever agreed to build its energy facility in another country – there are issues with security of supply, of securing the facilities, issues of each country wanting to develop its own workforce.
“It's a big issue for Israel to agree to give up control of having the facility on its territory,” she added, mentioning a government recommendation that suggested it be there.
The city of Eilat in Israel could also host an LNG facility, but she said it was a tourist area, which could be endangered by such a development. Security there was also tough, being surrounded by Saudi Arabia, Jordan, Egypt. One big advantage of Eilat, she offered, was it was the only place that could circumvent the Suez Canal, a “huge benefit.”
Utilizing LNG terminals in Egypt was an option, but the gas had to be delivered there. According to Ms. Cohen, Delek and Noble were quite keen on the idea and had met with the owner of one of the terminals, BG, which had shown interest. “It's still going to be extremely difficult for Egypt to agree to buy Israeli gas before some kind of peace settlement is agreed.”
Delivering to Egypt meant there was no transit country involved, whereas getting the gas to Turkey meant having to go past Cyprus.
FLNG, she said, could be done offshore Israel or offshore Cyprus: “Each different kind of LNG has different benefits, advantages and disadvantages. The great benefit is that it's quicker, not more expensive than doing it onshore, probably the same kind of price as a brownfield project in America. It is much quicker of course, because you don't need all the permitting.”
The main risk of it was the lack of experience; weather was also a factor, she said.
LNG could also be done on reclaimed land, which was not an option for Israel because it did not have a lot of sand, which would have to be delivered from the Nile Delta.
She showed delegates a diagram of existing transmission lines in the region, like a pipe from the Egyptian export company, which did not presently have reverse flow. “For about USD 150 million this line could be reversed,” she said. “Politically complex, technically not so complex.”
The gas could also be sent to Jordan through a pipeline owned by the Israeli transmission system.
Or, the gas could be sent to Cyprus to Vasilikos.
Ms. Cohen commented: “Technically easy, geopolitically easy – no transit countries. Commercially it could be, of course, interesting because if you have LNG you have total flexibility of exporting the gas wherever you want, but the security and the control issue is very complicated.”
Regarding the potential delivering of Israeli gas to Turkey, she said it was a market of 72 million consumers, consuming 47 BCM/year, growing 5-10% per year. “Huge need for gas, but the implications of how to get the pipeline to Turkey are very complicated and if the gas is in Turkey, again, it's complicated from the seller's point of view.”
As for selling to the region, she said that countries in the region had issued tenders to buy LNG, despite their having signaled interest in buying natural gas from Israel.
In conclusion, Ms. Cohen said that technically, selling to the Palestinian Authority, Jordan and Egypt was the easiest; commercially, LNG to the Far East, where the prices were much higher; politically, it was best for Israel to resuscitate ties with Turkey.