Israel’s gas predicament: We’ll make some money, but we won’t gain political clout

In today’s commodities market, an individual exporter plays a far less important role, as the crude oil changes corporate hands multiple times.

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December 10, 2017 07:29
4 minute read.
natural gas

Israeli natural gas field in the Mediterranean. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

 
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Israeli natural gas may eventually flow to Europe, as Energy Minister Yuval Steinitz signed a memorandum of understanding this week to build the longest undersea pipeline ever by 2025.

The planned 2,200-km. sub-sea pipeline – connecting gas fields off the shores of Israel and Cyprus to Greece and possibly Italy – would, in Steinitz’s words, “make Israel an important player in the European energy market... strengthen the energy security of the European Union and diversify Europe’s sources of supply of natural gas.”

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But becoming a major energy exporter is no guarantee of geopolitical influence or sway. Just ask Russia.

Russia provides the 28 countries of the European Union with around 30% of their natural gas imports, according to the European Commission website. The country also supplied Europe with 28% of its crude oil in 2015.

Yet the increasing dependence on Russia hasn’t stopped the EU from sanctioning Moscow over its controversial invasion and occupation of eastern Ukraine.

Similarly, Mediterranean natural gas to Europe would likely not affect periodic EU condemnations of Israeli government policy in the territories.

“Sometimes there’s the belief in Israel that if we supply Europe with gas, they won’t label our goods from the West Bank and they won’t critique our policies in the West Bank,” said Brenda Shaffer, an American-Israeli professor at Georgetown University who has advised the Israeli government on energy security.

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“Yet there’s not a translation of gas and oil exports into political influence,” Shaffer told The Jerusalem Post. “If you are the single provider to a market, like [Russian state company] Gazprom, then it’s a different situation. But we’re not talking about Israel being a single supplier to any market.”

Israeli supplies of natural gas would also be a drop in the bucket in the gigantic European market. The proposed pipeline’s 12-16 billion cubic meters (BCM) of gas annually would constitute 3%-4% of Europe’s 2016 demand, according to Eurogas.

In an interview with the Post last month, Steinitz said that the proposed pipeline and Israel’s discovery of huge natural gas fields could also counteract the influence of Arab oil on European countries.

“For many decades, the Arabs used the fact that they’re supplying Europe with oil and natural gas in order to try to pressure Israel,” Steinitz of the Likud party, said. “And now we will have something to balance and influence.”

Saudi Arabia supplies the oil for only 8% of Europe’s oil consumption, according to Energy Post. And today Sunni Arab oil producers are enjoying much friendlier relations with the Jewish state.

In today’s commodities market, an individual exporter plays a far less important role, as the crude oil changes corporate hands multiple times.

“Israel, I think, is still sort of traumatized by the 1970s, and it’s very fixated on the influence of oil on politics,” Shaffer said. “But we’re really in a different era. Today, the biggest oil producer in the world is the United States. Oil is traded very freely in market conditions, not in long-term contracts, not between countries. It’s much easier to get oil today, and it’s much more complicated to get gas.”

Natural gas is also used for different purposes, and doesn’t simply replace oil.

“Most places in Europe use gas for electricity production, and electricity production by and large is not from oil,” Shaffer added. “Gas imports replace domestic production of gas in Europe and of coal.”

Declining European natural gas production in the North Sea is forcing EU countries to look to natural gas supplies from Israel’s Leviathan field and Cyprus’s Aphrodite field.

Leviathan – Israel’s largest reservoir with 613 BCM of natural gas – is under development by lead partners Delek Drilling and Noble Energy. Situated 125 km. west of Haifa, the field should be up and running by the end of 2019, initially servicing Israel’s domestic market and Jordan.

Two other gas fields, Karish and Tanin, are also being developed by Greek company Energean. The Karish reservoir should be connected to Israel by 2020, and then work will commence on Tanin. Karish and Tanin sit about 80 km. and 120 km. northwest of Haifa, respectively, and have combined reserves of 67 BCM of natural gas, along with 41 million barrels of oil equivalent of light hydrocarbon liquids.

Questions do emerge as to the economic feasibility of the pipeline and whether companies will bid for the privately funded pipeline, set to cost $6-7 billion. It is unclear whether companies would be interested in embarking on the Israeli-Cypriot pipeline, as they might prefer a short and cheaper Turkish pipeline.

“I don’t see much commercial appetite right now for an additional major gas import pipeline into southern Europe,” Shaffer said. “If Israeli gas would arrive into Europe, it’s much more likely that it would arrive via Turkey through the Southern Gas Corridor.”

Currently, an estimated $40b. pipeline is under construction from the Caspian Sea, through Turkey and into Europe. It is likely cheaper and easier for Israel to connect to that pipeline, an Israel-to-Turkey project, rather than building a separate Mediterranean line.•

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