Israel looks to develop its gas industry

Mar 04, 2014 12:00 AM

Israel was ahead of neighboring countries in terms of natural gas exploration and drilling operations. It started production in the Tamar field for internal consumption in March 2013.

For the last two months, Israel has been working on the first phase of its gas industry development. It signed gas export agreements with neighboring countries and regions, such as the West Bank and Jordan, in an attempt to assume the main role in the regional gas industry in the eastern Mediterranean.

In the meantime, Israel is also promulgating the laws required for the second phase of development, which is related to internal gas distribution through the construction of a national network.

Furthermore, the third phase is focused on a project to export gas to Europe, and negotiations are ongoing in this regard. It's worth mentioning that Israel itself took all these initiatives, despite internal disagreements about the taxes it must impose on oil companies operating on its territory, the quantities of supplies to be exported, the reserves ratio it must keep and refrain from exporting, and the maritime border dispute with Lebanon over the disputed areas. Israel started the process of gas exploration before even resolving these disputes.

Oil companies operating in Israel have discovered so far seven offshore gas fields with a confirmed reserve of about 32 trillion cubic feet, and a very small oil reserve that does not exceed 12 million barrels. The production of the oil reserve is not economically profitable, while the gas reserves may be invested, even if its quantity is small compared to the oil reserves of exporting countries.

The Australian company Woodside Petroleum finally joined the companies operating in the huge Leviathan gas field. It is worth mentioning that Woodside is the largest Australian oil company, and Shell owns a significant number of shares in it. Until late 2013, the American company Noble Energy and small sized Israeli oil companies were the only companies operating in the Israeli territorial waters.

The gas fields were all discovered in the Israeli exclusive economic zone (EEZ) located 200 km away from the coast of Haifa. As usual, Israel linked its gas policy to its security policy.

Months after a debate among politicians, an ad hoc committee was appointed to study the ratio of supplies that can be exported. The committee proposed figures to the Cabinet, and the latter agreed. According to these proposals, 40% of the reserves of each field would be exported and the remaining 60% would be allocated for domestic consumption, for a period of about 25 years at least.

This decision, which annoyed oil companies, was mainly taken for security reasons. In fact, Israel is trying to avoid the import of gas in the future, especially from or through Arab countries. On the other hand, the companies objected the high ratio allocated for domestic consumption, because they make more profits through exports.

Moreover, Noble Energy agreed, with its Israeli corporate partners, to export about 66 billion cubic feet of gas from the Tamar gas field to Jordan as of 2016 for a 15 year period. Exportation is expected to start upon the completion of the construction of a short pipeline south of the Dead Sea. Keith Elliott, senior vice president of the eastern Mediterranean region at Noble Energy, stated that “the agreement with Jordan indicates the growing regional opportunities for our natural gas.”

In January 2014, Noble Energy signed a $1.2 billion contract with the Palestinian Electric Company to supply the power station in Jenin in the northern West Bank — which is still under construction — with natural gas from Leviathan gas field for the next 25 years.

It must be noted that the gas to be exported to the West Bank was considered part of the 60% domestic consumption share of Israel, which is not intended for exportation.

In addition to this, the Palestinian Authority accepted this agreement despite the fact that Israel is still objecting the development of the Gaza Marine field off the coast of the Gaza Strip. This field has reserves of about 1 trillion cubic feet and it can supply Palestinian power stations with gas for the next few years, thus eliminating the need to import gas from Israel.

Israel is also negotiating the gas exportation to Turkey, or to Europe through Turkey.

Despite the disputes over the issue of the Turkish ship the Mavi Marmara off the coast of Gaza, negotiations continued among four Turkish companies on one hand, and Noble Energy and its Israeli corporate partners on the other for the construction of an Israeli pipeline for this purpose. It's worth mentioning that the US is pushing for action in this respect.

Although the Turkish market is saturated with gas imported from Russia, Azerbaijan and Iran through pipelines and by gas liquefaction from Algeria, Turkey is constantly trying to contract with new exporting companies in the hope of creating competition among the companies to obtain better prices. This applies to Turkey’s continuing attempts to import gas from the Kurdistan Regional Government (KRG) in Iraq.

On the other hand, Israel is trying to export gas to Turkey to penetrate the local market. As for the export to Europe using Turkey as a crossing point and through the gas pipeline stretching from east to west, Israel will feed on of these pipes without the need to construct a line of its own.

The available data indicates that the chances of success of gas exportation to Turkey depend, to a large extent, on the success of the current negotiations between Turkey and Cyprus on the reunification of the island, which are still in their initial stages.

Moreover, over the past years, Israel has been negotiating with Cyprus on the latter’s participation in the construction of a joint gas liquefaction plant. For its part, Cyprus tried to consolidate its energy-related ties with Israel in an attempt to find a strong regional ally to fend off Turkish pressures and threats.

Today, with the start of the Cypriot-Turkish negotiations supported by the US and aimed at finding a solution to the Cypriot issue, both Turkey and Israel are looking forward to the possibility of strengthening their energy ties in the event of the success of these negotiations.

The second phase of the development of the Israeli gas industry is to plan the construction of a national gas network to meet the needs of power stations and chemical and petrochemical plants.

The third phase is concluding agreements on the projects to export gas to European markets.

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