Israel: Regional Deals Amid Shaky Politics
Texas-based Noble Energy announced1 on 19 February the signing of gas agreements with Jordanian companies. Noble will supply natural gas from the Tamar field to Arab Potash and Jordan Bromine for use in their facilities near the Dead Sea. Sales are expected to commence in 2016, date that coincides with the expected completion of initial infrastructure work on the pipeline that will connect Israel to Jordan. According to Noble's press release, the price will have a floor of at least USD6.5 per thousand cubic feet of natural gas with an upside linked to Brent crude oil prices. The American giant expects gross revenues to reach USD500 million and actual sales to vary according to the quantities of natural gas purchased and oil prices at the time of sale. Noble Energy operates Tamar with a 36% working interest. Other partners in the estimated 10 Tcf Tamar include Isramco Negev 2 with a 28.75% working interest, Delek which holds 15.625%, Avner with 15.625% and Dor Gas Exploration which holds 4%.
The drilling consortium is also said to be in serious and advanced talks to supply a larger amount of natural gas to Egypt. Noble energy had announced in the last quarter of 2013 its shift in export strategy indicating it was considering exports to immediate neighbors before studying further options such as building an LNG terminal, participating in Cyprus’ LNG project or building a pipeline from the Leviathan to Turkey. Israel’s history of shaky politics with its Arab neighbors puts a question mark on the feasibility of such deals. Israel has a history of natural gas dependence on Egypt and suffered from the disruptions of supplies due to various attacks on the pipeline connecting Egypt to Israel. Jordan too is suffering from a major energy crisis since the flow of Egyptian natural gas has become unreliable in the aftermath of the 2011 Egyptian revolution. The recent signed deals and talks between Israel and its Arab neighbors have however demonstrated that Israel will take advantage of the momentum of gas shortages to sell its gas and that its regional customers are in desperate need to find a cheaper and more reliable source of natural gas. Egypt is struggling to meet its domestic demand while fulfilling its export obligations. Importing from next-door Israel would be a technically simple endeavor. Public reactions are however feared as it is uncertain how the people will perceive any collaboration with Israel, let alone energy partnerships that would place both Jordan and Egypt in a position of energy vulnerability.
A recent MOU signed between the Leviathan partners and Woodside for the Australian giant's acquisition of 25% of the 19 Tcf Leviathan field reflected a reviewed pricing upward that was interpreted as a deviation from the original LNG scenario towards a pipeline strategy. Woodside LNG expertise played a lesser role in influencing the price. Opting for a pipeline means that the cost involved in transporting the gas from the Leviathan to export markets will be less than the one attached to LNG undertakings and would increase the value of the field - hence the higher price tag imposed on Woodside.
The outcome of Israel’s regional deals and its adoption of what has been referred to as ‘pipeline diplomacy’ is yet unclear in a part of the world marked by years of confrontations and mutual distrust. What is certain is that Israel has abundant quantities of natural gas to export and will not stop at its immediate surrounding. Other plans are currently in the process of taking shape. The recently resumed Cyprus’ peace talks could pave the way for a Turkish pipeline via Cyprus’ EEZ that might also be advantageous for Cyprus if Israel decides to simultaneously process part of its gas via the island’s LNG.
Israel diversified routes and options would ensure the continuity and security of its sales. Whether energy will achieve peace and prosperity through common economic interests might be too optimistic and premature of an assumption. Further developments are happening in the region, with Lebanon also in the process of developing what is believed to be abundant deposits of oil and natural gas and has demonstrated its attractiveness to international oil and gas majors. It will not be before another decade for the whole Eastern Mediterranean energy map to take shape.
1- Noble Energy's press release is accessible via this link http://investors.nobleenergyinc.com/releasedetail.cfm?ReleaseID=826568
Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean. Email Karen on ayat_karen@hotmail.com. Follow her on Twitter: @karenayat