Eastern Mediterranean Gas: An Israeli Perspective
The Russian decision to drop the South Stream project spurred an increasing interest for alternatives to Russian energy supplies. Israel, Cyprus and Greece have seized the opportunity putting forward a proposal for a pipeline from the Eastern Mediterranean to Europe. The three countries are lobbying the EU to invest in the project.
EC Vice-President Maroš Šefčovič expressed moderate enthusiasm for the project, but other EC officials made clear that the decision will depend on future feasibility studies.
Against this backdrop, Natural Gas Europe had the pleasure to interview Shaul Zemach, Former Director General of Israel's Ministry of Energy and Water Resources, who participated in the event "2030 Energy Security: The Role of the Eastern Mediterranean." Mr. Zemach led an inter-ministerial Committee tasked with proposing an adequate quota of natural gas to be allocated to export markets.
We spoke about the role of the European Union, Turkey and Egypt. We shed light on Lebanese declarations about Israel siphoning gas from one of Lebanon’s reserves. We also focused on the consequence of natural gas prices on the project, while discussing the potential of the East Med and the feasibility of the pipeline from Israel to Italy, through Cyprus and Greece.
NGE - At a recent conference, you basically said that the fall in natural gas prices requires stronger political backing and that it is not an insuperable hurdle. Do you fear that decreasing natural gas prices may affect the commercial viability of Israel’s natural gas projects? What is the role of the European Union and Turkey?
You have to consider three dimensions: the commercial, the technical/professional and the geopolitical dimension. Those are key elements in every gas contract, even the ones between Canada and the United States. So the role of the Government is to create an environment where the companies can take their decisions in a way that is compatible to the Government’s intentions. With that said, there are many mutual interests that can potentially push Israel and Turkey to explore whether there is room for cooperation.
What does that mean on a practical level?
We should not look at this issue from the perspective of the spot market for Brent. We should look at it in a wide perspective, thinking about the growth and need of the region and the people. Considering all these factors, there is a huge opportunity.
You are basically saying that there is a potential for regional cooperation. What is the role of Egypt in this? Delek and Noble are in talks to supply Egypt with natural gas from the Leviathan and Tamar fields. Does Israel see in Egypt a potential customer of Israeli gas or is Israel also considering using Egypt as an export route to reach far-reaching markets?
Egypt represents a significant player in the region. The deal that has been negotiated is aimed at taking advantage of unexploited LNG facilities in Egypt in order to export some quantities from the region, which will allow to justify the investment to develop the discoveries, especially the Leviathan and Aphrodite for the sake of the domestic markets.
You are saying that Egypt’s LNG facilities are relevant also for potential investors and for their decisions to pour money into the region?
What I am trying to say is that companies decide on the commercial terms, while political players should create an atmosphere that would facilitate any kind of commercial decision.
What is your personal consideration on the decision of Woodside to scrap the $2.6 billion deal? Some say that Woodside’s exit will allow for a more regional focus, helping the partners develop the field with a more “customised” strategy. Do you agree?
First of all, Woodside’s decision was disappointing in terms of regional investments. After a long process of due diligence, it showed its confidence in Israeli potentials, Israeli economy and significant discoveries in the region. I don’t think it is necessarily crowd out something else.There is a lot of potential. First of all, in each and every basin, you have to look at the domestic demand. It is a kind of moral issue to let the people that are close to the resources to improve their quality of life. But in order to utilise those resources, you have to export the natural gas. In this context, Woodside was a very good company. Maybe they could come back in the future to the region. But still there is room for both export and domestic use.
So you are basically saying a strong regional focus is needed, but it cannot exclude a more international scope. The latter is needed to allow gas to be extracted. In other words, you are saying that investors are needed. Do you see other investors that could be interested? Any Italians for example?
We have Edison that is an operator in Israeli waters. We have some majors operating in Cyprus. There are some other companies that showed their interest for Lebanon. There is confidence about natural gas and probably in the future there will be some focus on crude oil.
In your presentation, you also said that the combined resources of Cyprus, Israel and Lebanon are larger than combined resources of Norway, the Netherlands and the UK. Could you please elaborate on this?
What I was trying to show is the potential that might not be utilised because of wrong decisions by the EU or by the domestic players. During the presentation, I used the North Sea players to show that they had the potential and the knowledge, they took the right decisions to develop the resources. As a result, they now have proven reserves. On the other hand, Israel, Lebanon and Cyprus have the potential. What I want to say is that we have to find a way to translate that potential into proven reserves.
What did you base your presentation on?
The assumptions were based the USGS’ assumptions. In case of Israel, those assumptions were validated. I don’t see why the same should not happen for resources in Lebanon and Cyprus. That is why I am saying let’s look at that as a potential basin. Can it be developed in the same manner of Norway and the North Sea? Maybe in 50 or 60 year time, we will find in the East Med the same kind of development that we can now see in the North Sea.
You say that cohesion could translate potential resources into reserves and developments. Speaking about a shorter term, is Israel still considering LNG facilities. Do you see any room for that?
Right now, I think that the most efficient way of exporting the gas is not necessarily going hand in hand with the timing for LNG facilities. An immediate investment is not on the agenda. It could be something for the future.
Changing slightly topic, the Speaker of the Parliament of Lebanon Nabih Berri said it has received credible information that Israel had started siphoning gas from one of Lebanon’s reserves in an area close to the southern border with Israel. Do you have information about it?
Israel is acting according to the International laws. It is not doing anything that is in contrast with International laws.
What is the possible reason for Berri’s comments?
I am not an expert of Lebanese politics. So I cannot comment on that. I can speak about what Israel is doing. Israel is acting according to each and every relevant law referring to that issue.
The committee you headed worked towards ensuring an adequate quota of natural gas is allocated to export markets and that the domestic and commercial needs of the Israeli market are also satisfied at home. Do you believe Israel has achieved such an equilibrium with its decision on export quotas?
When dealing with public policies, you have to take into account what is the social environment. I think that the outcome we have now is a fair compromise that leaves enough quantities for export and enough quantities for the Israeli domestic demand for a 30-year time. There is not a magic number. There is not a right or wrong number. I think that this policy serve the target of developing the discoveries. It fits with that.
Do you see any role of the political crisis in Israel? Could this affect gas activities and developments? What about Israeli neighbours? Do you think it could have an impact on the feasibility study on the pipeline that European authorities are likely to start soon?
Investors like calm, stabilised place. The question of investing in natural gas is sometimes different. Companies are used to work in regions that are not very calm. Investors know how to mitigate risks stemming from political instability. What we have to do is to keep it within the risk management procedures and not to leave it to uncertainties. Investors cannot deal with uncertainties, they can deal with risks. The role of the government is to keep uncertainties away, and just leave the risks.
In this context, when do you expect additional news about the project put forward by Israel, Cyprus and Greece? When do you expect some updates about the proposed pipeline? Will the feasibility studies be central for any future decision?
It needs a lot of studies - there is a lot of information that we don’t have. It would be the most complicated gas pipeline in that nature. You have to take into account that the surface is not flat, but there are underwater mountains and hills. There is volcanic and seismic activities that take place in that region. All these factors have to be carefully considered to say whether this gas project is viable or not.
Do you have any timeline to have these answers?
No.
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci