Israel in Talks for $30 Billion Natural Gas Deal

“…On the very day when the enemies of the Jews hoped to gain the mastery over them, it was turned to the contrary: the Jews gained mastery over those who hated them.” (Esther 9:1)

Israel has long relied on energy imports, often coming from neighbouring Arab countries, to meet most of its energy needs. Now it seems as that tide has turned.

In 2009 Avner Energy, with its partners Noble Energy and the Delek Group, discovered the Tamar gas field in Israeli waters off the shores of Haifa. After having uncovered many smaller gas fields, the Tamar field has the potential to supply a large portion of Israel’s energy needs. Since March 2013, gas from the Tamar field has been used for consumption in Israel.

The timing of uncovering the Tamar gas field was fortuitous. In 2005, Israel signed a 15-year agreement with Egypt’s Mubarak government to buy natural gas. However, with the advent of the Arab Spring, political unrest in Egypt and the overthrow of the government, the pipeline traversing the Sinai repeatedly fell victim to Arab saboteurs, leading to electricity shortages in Israel.

Finally in 2012, Cairo canceled the agreement altogether. The loss of Egyptian gas turned out to be only a minor crisis for Israel, and one easily bridged by a few months of gas imported via tankers. Once the Tamar field became fully operational, Israel is now provided with a majority of its energy needs, including 40 percent of electrical power.

More recently a second field was found, termed Leviathan after the biblical sea creature, with a much larger repository of natural gas. The Leviathan field will only begin pumping gas as of 2017, but once it does the gas fields are expected to supply Israel’s domestic needs for decades and could transform the country into a significant energy exporter.

With the finding of new gas fields, Israel’s need to import gas has declined dramatically and they have begun exporting gas to other neighbouring countries. This dramatic role reversal was furthered last week as the Delek company and its partners signed a letter of intent to export 7 billion cubic meters [bcm] of gas to the British BG plant in Idku Egypt.

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The letter indicates an agreement to export gas directly from the field in the Mediterranean to Egypt for a period of 15 years, beginning in 2017. The flow of gas will commence upon the completion of an underwater gas pipeline which is to be built by BG.

The deal will see Israeli gas pumped directly from the Leviathan field off Haifa, to BG’s liquefied natural gas plant in Idku. According to a report published by Reuters BG confirmed the letter of intent “marked a ‘first step’ towards supplying its stalled Egyptian plant with gas,” but also noted that it was still too early to tell whether the deal would go through.

This letter of intent follows upon the heels of two prior agreements. In May, Noble and Delek signed a letter of intent on a smaller deal to export up to 4.5 bcm per year over 15 years from the smaller Tamar field, to a second Egyptian refinery in Damietta operated by Unión Fenosa Gas, a joint venture between Spain’s Gas Natural and Italy’s Eni.

Additionally, the Leviathan partners have also signed a small supply contract to sell gas to potash and bromine companies in Jordan, and are negotiating larger contracts to pipe gas from Leviathan to Jordan and Turkey.

The proposed deal with BG, if struck, would provide an anchor for the development of the Leviathan field, one of the industry’s largest deepwater finds anywhere over the past decade, which holds an estimated 19tn cubic feet of discovered gas.

According to an AP report, an anonymous official from Tel Aviv associated with the industry said that the deal could be valued at approximately $30 billion, qualifying it as the largest energy deal in Israel’s history.

The geopolitics of Israel exporting gas to neighbouring countries are delicate due to the ongoing security situation and political conflict. However, the Leviathan partners seem to have found a way to circumvent the issues and start the ball rolling of reversing Israel’s energy dependence, and are not limiting their sights on Egypt and Jordan.

The gas unit of Turkish fuel retailer Turcas is holding non-binding talks with another company to jointly procure natural gas from Leviathan, while Leviathan’s partners have also started looking into selling gas through a pipeline to Cyprus.



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