Growing demand for gas throughout Europe and worldwide following the outbreak of the war between Russia and Ukraine has created a limited window of opportunity to export gas from the Middle East to Europe as well as to other countries like India and China.
In this situation, the governments of Israel, Egypt, Cyprus and Greece are striving to speed up handling the issue, and have formulated several different courses of action. Among other things, the governments intend building a new pipeline system that will carry gas from Israel and Cyprus to the liquefaction facilities in Egypt (which will also use the gas for domestic needs), building a liquefaction facility on the eastern shores of Cyprus, build a floating liquefaction facility as part of the expansion of the Leviathan field, and export gas to Europe using tankers.
The plan is to maximize the potential of Israel’s natural gas resources, within the window of time created by demand in Europe. An Israeli source familiar with the subject told “Globes,” “This has to happen as soon as possible, otherwise we will miss the opportunity and the delays so far have already created global skepticism about us.”
According to the previous plan promoted by the then Minister of Energy Yuval Steinitz an underwater pipeline (Eastmed) would have been laid to allow the export of gas from the offshore fields in Israel, Cyprus, and Egypt to Italy. Although the plan is not completely off the agenda, there were too many question marks about the feasibility of its implementation.
Cost of a liquefaction plant: $2 billion
“The next stage in exports is the construction of a floating liquefaction facility, which is planned as part of the expansion of the Leviathan field, and will allow Israel to export gas to European and parts of Asia,” says Yossi Abu, CEO of New-Med Energy (TASE: NWMD) (formerly Delek Drilling), which is a partner in the Leviathan field. “This is the most economical and successful solution that will be an alternative to expensive and long pipelines.”
The cost of building the new liquefaction plant is estimated at over $2 billion. After construction, the liquefaction phase will begin, and tankers with liquefied gas will set sail to European ports, and later to markets in Asia. Abu stresses that export volumes will be set after all the needs of the Israeli economy have been met. This enthusiasm to export will require supervision by the Ministry of Energy to ensure that there is enough gas left for domestic consumption within Israel.
Current prices for long-term gas contracts are $12-14 dollars per British Thermal Unit (BTU). Contracts at these prices would lead to a significant increase in the state’s revenues from natural gas.
A senior government official has told “Globes” that this is a comprehensive policy that involves the top bodies in Israel and the region, including the Prime Minister’s Office, the National Security Council, the Ministry of Foreign Affairs, and the Ministry of Energy. “The aim,” the official said, “is that within three years the scale of exports to Europe would increase many times over and with it the tax royalties and levies for the state. We are talking about many billions that may be lost without direction from above, removing obstacles, high-level regional cooperation between leaders, and accelerated development.”
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Next week Minister of Energy Israel Katz will fly to a large energy conference in Cairo EGYPS 2023 (Egypt Petroleum Show). During the conference attended by leaders from the Middle East and North Africa, Katz is expected to meet with Egyptian President Abdel Fattah El-Sisi, the Egyptian Minister of Petroleum Tarek El Molla and the heads and representatives of major energy companies in the region.
At a meeting this week Katz told the Egyptian Ambassador to Israel Khaled Azmi, “There are many issues we must promote together in the area of natural gas in order to deepen cooperation, realize the vision of regional collaboration, and tighten the important strategic connection between the two countries.”
Back in November Benjamin Netanyahu, before returning to the prime minister’s office, met with Cypriot President Nicos Anastasiades. In their talks the topic of energy cooperation came up including building a pipeline system in Cyprus. Last week, Netanyahu met with the Greek Foreign Minister Nikos Dendias and among other things they spoke about their joint vision.
Estimates: High likelihood of discovering more Israeli gas fields
In Israel’s economic waters only about 25% of the gas fields’ potential has been exploited to date. About a year ago the then Minister of Energy Karine Elharrar announced that Israel would not search for more gas but then she changed her policy after it was harshly criticized. Later in the year the Ministry of Energy issued a fourth round of tenders for gas exploration rights in Israel’s waters.
According to the Ministry of Energy, a number of Israeli and international companies have already made enquiries and expressed interest in participating in the tenders. Energean plc (LSE: ENOG; TASE: ENOG) CEO Mathios Rigas tells “Globes” that he will probably participate in the tender, and NewMed Energy CEO Yossi Abu has also announced the company’s intention to take part. “We are convinced that there is potential for further significant gas discoveries here, and NewMed Energy will participate in the upcoming Ministry of Energy tender. This is our home court.”
In addition, other companies already operating in the area, such as Chevron, are showing interest in the tender procedure. It is estimated that there is a chance of discovering more gas fields with significant volumes, and these, depending on their size and proximity to the coast, will require necessary solutions for transportation, with the liquefaction ships being a preferred solution with pipelines only for reservoirs close to the coast.
Ministry of Energy: Examining future alternatives with neighbors
Israel’s Ministry of Energy said, “The ministry will continue to work to strengthen cooperation with Cyprus as with many countries in the region. The Natural Resources Administration is currently presenting the range of issues related to the exploration, production and export of natural gas to the incoming Minister and director general, including dealing with cross-border reservoirs. These are complex issues that include many parameters and have economic, energy and geopolitical implications. “Therefore, it is necessary to consider the future needs of the Israeli and global economy. The ministry is working to ensure the existence of suitable infrastructures for the export of natural gas subject to the government’s policy on the matter, and is examining a number of future alternatives in cooperation with the private sector and neighboring countries.”
Published by Globes, Israel business news – en.globes.co.il – on February 8, 2023.
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