Uncertainty Surrounding Israel's Natural Gas Market
Israel’s knesset approved early in September a framework deal that will allow the partners in its largest offshore gas fields to move forward in the development of the Leviathan. Under the framework deal, Texan Noble Energy will have to bring down its share in Israel’s Tamar field to 25% within a period of 6 years. Israel’s effective development of its offshore resources had been delayed by legislative hurdles. The partners in the 10 Tcf Tamar field and the 21 Tcf Leviathan field have been accused by the country’s competition regulator of constituting a cartel that would distort competition in the market. The framework deal approved on Monday 7 September also caps the price of the natural gas sold by Noble Energy to the Israeli consumer. Once the framework deal is implemented, Noble Energy and its Israeli partners Delek drilling and Avner Oil Exploration expect to be ready to enter gas sales contract negotiations and to complete the development of the Leviathan in three to four years time. The frequent regulatory disputes in Israel have triggered fears that delays in the production of the Leviathan field could cost Israel to lose regional opportunities. Israel has been engaged in talks to sell gas to its immediate neighbours Jordan and Egypt, both undergoing severe energy crises and in desperate need for Israeli natural gas.
Israel’s late entry into the market could indeed be harmful to the newly natural gas producing Eastern Mediterranean country. Egypt has launched efforts to develop its indigenous resources. Early this month, ENI announced a giant gas discovery off Egypt’s shore: the Zohr field, located at a depth of 1,450 meters in the Shorouk Block within Egypt’s Exclusive Economic Zone, is estimated to hold up to 30 Tcf of natural gas - more than Israel’s 21 Tcf Leviathan. This is a significant discovery: if the estimates are confirmed, Egypt would have more natural gas than Norway. The impact on Israel goes beyond losing Egypt as a customer for Israeli gas: Israel was eying Egypt’s LNG terminals at Idku and Damietta to reach export markets but if Egypt allocates some of its gas for exports, it is uncertain that the terminals would have the remaining capacity to welcome Israeli gas.
Despite Egypt’s statements that it will still import Israeli gas, experts believe that Israel ought to look for an alternative way to export its offshore resources. A possible alternative would be to export the gas via Turkey to Europe. The ongoing peace talks to solve the Cypriot problem may lead to a settlement of the dispute that would allow Israel and Cyprus to reach the European market via Turkey. Cyprus too has yet to find a way to monetize its Aphrodite field, estimated at 4.54 Tcf and located in Block 12 of its maritime zone. The new find in Cyprus may revitalize Israel and Cyprus' energy partnership towards finding a common way to sell their offshore riches.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. Karen is also a co-founder of the Lebanese Oil and Gas Initiative (LOGI). She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat