Israeli Gas In the Aftermath of Eni's Discovery in Egypt: Gaza is Key

Natural Gas Europe had the pleasure to speak with Amit Mor, CEO of Eco Energy Financial & Strategic Consulting, about Israeli gas and ENI’s discovery off Egypt. Mor concedes that the problem of Israeli gas is all political, explaining that the delays in the regulatory framework approval is impacting the country’s energy security, as well as companies’ prospects in the region. Nonetheless, Mor considers the Egypt’s option something still on the Israeli table. “There is room for exporting Israeli gas to Egypt in four years and possibly less” he said in our interview. He also underlined the importance of the situation in Gaza, which would increase the odds of Israeli gas exports to Turkey. 

The Israeli Parliament has been discussing the regulatory framework for gas operations offshore Israel. Did the Parliament make any reference to Egypt, or is the discussion simply a political game?

The gas policy became a purely domestic political issue. It is the opposition versus Netanyahu. Although ENI’s discovery has been discussed, it is not part of the political debate. 

What's your view on the latest developments?

The Knesset, the Israeli Parliament, recently approved the proposed outline, which is important but rather have a symbolic meaning. Nevertheless, Prime Minister Netanyahu withdrew the government request from the Knesset to approve the transfer of authority to bypass antitrust decisions from the Minister of Economy to the Cabinet, since he would not have a majority for that. Therefore the natural gas outline cannot go ahead the regulatory deadlock still prevails.

We heard that Noble Energy threatened the Israeli government to go to arbitration against Israel in case there isn’t a law coming out. Is it simply a threat or something more? 

The delays already caused major damages to the Israeli economy and also to the oil and gas companies, which can not sign export agreements with companies like BG, Union Fenosa and the Jordanian Electricity Company. The gas in Tamar and Leviathan fields could have now been transferred to and exported through the idle LNG plants in Egypt. Thus, it is a major loss for the Israeli economy, for the companies and especially it is a major threat to the Israeli energy national security, because currently 60% of the power is generated by gas that is supplied from one field -  the Tamar field, and, in case of damages to the infrastructures currently in use, the Israelis and Palestinians alike would sit in the dark.  

You are saying that Noble Energy’s position is legitimate. Right? What would be an eventual timeline for the international arbitration? When will a decision be made? What are the eventual steps that Noble Energy might take? 

I don’t know and I hope that this possibility will not materialise and eventually the Israeli parliament will come to terms, and the government will be able to achieve majority and solve this ironical political loop. 

Do you think that there is still room for Israeli and Egypt in the gas sphere. In case, don’t you think that ENI’s discovery calls into question Israeli attractiveness as a natural gas supplier? At least for Egypt?

Egypt has about 70 Tcf of proven reserves that have not been developed yet. The Zohr discovery is an important addition to their reserve. However, it will take several years to solve the major natural gas shortage in the country. So I think there is still room for cooperation and possible export of Israeli gas via the LNG facilities in Egypt. Egypt could also consume some gas from Israel, as it is now buying more expensive LNG - at around 10 dollars per Million Btu. So I think there is still room for cooperation. Also looking at the timeline, there is room for exporting Israeli gas to Egypt in four years and possibly less. There are still commercial possibilities, but we have to keep in mind that energy and natural gas markets are very dynamic. In general, there is room for export to Egypt, to Jordan, to the Palestinian Authority, and possibly in the longer run also to Turkey and Europe.  

You just mentioned Turkey. Do you think Turkey could be the number one alternative? Some commentators are speaking about a geopolitical convergence between Turkey and Israel. Do you agree? Do you think Ankara is a feasible option for Tel Aviv? 

I think Turkey is a most economically viable market for Israeli gas, and more generally for East Mediterranean gas. According to their and our forecast, Turkey’s gas demand is expected to increase significantly in the coming decade. They are trying to decrease dependence on Russian gas. On a political level, we understand that President Erdoğan is in favour of Turkey importing Israeli gas. Nevertheless, I think that an upgrade of the bilateral relations is required to promote the natural gas trade between Israel and Turkey. Hopefully, natural gas export might facilitate decisions regarding the upgrade of the bilateral relations.

In case the Turkish Stream project did not go through, would the gas trade be more likely? In other words, do you think Ankara would look at Israel in case it had more problems agreeing on the project bringing Russian gas to Turkey?

In the gas sector, geopolitical considerations usually come before economic ones. At the same time, major projects could facilitate the enhancement of geopolitical relations. Erdoğan’s opposition to Israel is mainly related to the Palestinian-Israeli relations and the situation in Gaza - he supports Hamas. It is possible that progresses in the reconstruction of Gaza will create the conditions for Israel and Turkey to upgrade their bilateral relations and facilitate gas trade. 

In conclusion, what are the elements to take into consideration? We know that the Parliament is discussing the legal framework. We know that Noble Energy might be considering legal actions against Israel. What are the next events we should look at?

First, we need to see the domestic regulatory issues being solved; this will enable the gas companies to develop the fields. Without this regulation in place, I don’t see any progress.

You are saying: all the eyes on the Parliament. Right?

The Parliament is important, but it is likely that there could be other internal regulatory solutions.

Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci