Giving gas for bilateral relations in the Middle East

Within a short space of time, natural gas reserves on a scale of over 1,000 BCM were found in Israel’s economic waters alone.

By AMIR FOSTER
May 6, 2018 10:26
An offshore natural gas rig in the Mediterranean Sea

An offshore natural gas rig in the Mediterranean Sea. (photo credit: GUSTAV NACARINO / REUTERS)

 
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The historic gas export agreement reported in February by the Tamar and Leviathan gas partnerships for exporting 64 BCM natural gas to Egypt is in the clear geopolitical interests of Israel and the entire region. The agreement signed with Dolphinus Holdings Limited to supply gas in Egypt, which joins an agreement signed in 2016 between the Leviathan partnership and the Jordanian national electric company NEPCO, is a step up in strategic relations between Israel and its neighbors, and enhances the key role of the Israeli gas industry, not only in the economic and environmental arena, but also in the regional geopolitical arena.

The story of Israeli gas exports begins at the end of 2009, when the Israeli economy was taken by surprise.

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For the first time in the country’s history, a large natural gas reservoir (311 BCM) was found in Israel’s deep sea. The previously held thesis that the State of Israel had no choice but to rely entirely on importing energy sources was overturned.

However, even this impressive discovery did not prepare the Israeli economy for what would happen in the following two or three years.

The discovery of Tamar, in practice, opened up a new play for gas and oil exploration in the region, and led to a series of exceptional successes, foremost among them the discovery of the huge Leviathan reservoir (more than 600 BCM), the largest deepwater natural gas find in two decades, in addition to other significant finds, among them the Karish-Tanin reservoir, and Aphrodite in the economic waters of Cyprus, close to the borders of Israel’s economic waters.

Within a short space of time, natural gas reserves on a scale of over 1,000 BCM were found in Israel’s economic waters alone. This was equal to 200 years of natural gas consumption by the Israeli economy at that time.

The enormous scale of the gas finds led to a basic and fundamental change in Israel’s long-term energy planning, and the status of natural gas was upgraded from merely another source of energy in Israel’s fuel basket to the country’s chief and predominant energy source. And, indeed, natural gas soon became established as the main source for electricity production in Israel (in 2018, 70% of the electricity in Israel will generated by natural gas), and as a major energy source in the industrial sector.

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From energy importers to exporters

However, the quantities of natural gas found off Israel’s shores are many times greater than the local needs of the Israeli economy, and in order to develop the enormous projects, on the one hand, while still maintaining principles of energy security based on decentralization of production sources and survivability of energy infrastructures, it became necessary to find additional sources of demand outside the country. For the first time in history, Israel’s position was reversed – from an energy importer to a country with significant potential to export natural gas.

Moreover, Israel became the only country in the region with natural gas surpluses available for export.

One of the destinations for exporting Israeli gas is the Egyptian market. The Egyptian energy sector underwent a dramatic upheaval in the past decades, as a result of many years of stagnation in developing the Egyptian gas industry, due to the poor commercial conditions that prevailed for too long, and in light of the lack of internal stability caused by insurgencies in the country.

In recent years, Egyptian President Abdel Fattah al-Sisi has led a real revolution, and improved commercial conditions in the Egyptian gas sector.

Sisi’s actions, together with stabilization of the regime in Egypt, have led to a renewal of exploration and development of gas fields in the country, reaching a high point with the discovery of the huge Zohr reservoir.

At the same time, despite the discovery of gas in Egypt since Sisi came to power, production from Egypt’s active reservoirs continues to decrease, and the country, with almost 100 million residents, continues to need a regular, cheap and clean supply of energy. Moreover, in addition to gas consumption in the local Egyptian market, Egypt has two large natural gas liquefaction plants intended for exporting natural gas, but in light of the country’s gas crisis, the regular supply of natural gas has been halted, and the plants, in which international companies have invested billions of dollars, are unused most of the time.

Just the first sign

It may be expected that the export agreement signed in February to supply gas to the Egyptian local market is just the first sign of regional energy cooperation. Apart from the quantities of gas available for export that have already been discovered off Israel’s shores, there is the potential for additional finds of around 2,100 BCM off the Israeli coastline alone.

In addition, there is considerable potential for natural gas to be found in the economic waters of other countries in the Eastern Mediterranean.

Although the natural gas agreement with Egypt was signed between private entities, the Egyptian government under Sisi has expressed satisfaction with the fact that, thanks to this deal, Egypt has achieved a foothold in the Middle Eastern energy sector, a foothold that positions Egypt as a regional energy center, and, in his words, “a huge goal has been scored,” since the deal goes a long way toward turning Egypt into a regional hub for natural gas exports.

Sisi’s declarations of interest in “the gas coming into Egypt being used by the local market and for export from it” by means of the Egyptian liquefaction facilities – the “goal” celebrated by the Egyptian president – position Egypt and Israel as players on the same side, working toward advancing their joint objectives.

The signing of the export agreement and the statements by the Egyptian government that followed highlight the mutual, long-term interest that is shared by the countries, and give significant additional depth to their peaceful relationship. The Egyptian and Israeli energy industries are enabling the construction of a stable platform, based on longterm strategic interests, for additional collaborations between Israel and Egypt, and between other countries in the region, which can help the entire region in terms of its economy and energy.

The writer is head of strategy and research at the Association of Oil & Gas Exploration Industries.

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