by Alon Liel
and Amit Mor
During the last five years Israel was blessed with significant natural gas discoveries in the deep water of its Mediterranean coast. The Tamar and Leviathan gas fields were the largest discovered in the world in the past decade. The use of this gas will benefit Israel directly to the tune of US$6 billion per annum. In addition to the potential boost to Israelís economy, it gives the country a unique opportunity to meaningfully change its economic and energy relations with the region ó as long as politics do not stand in the way.
The reliance on domestic gas will lower Israelís dependence on imported fuel. It was less than three years ago that the Egyptians cut the gas flow to Israel after terrorists blew up its pipelines in Sinai 14 times. For years Israel had to import its oil from remote destinations such as Mexico, Norway, Nigeria and even Venezuela. It was only recently that Azerbaijan and Russia became its primary oil sources. Now Israel will be able to drastically reduce its reliance on imported fuels.
Ten years ago Israelís power generation mix was 80% coal and 20% fuel oil and diesel. At the moment it is already at 50% natural gas and 50% coal. In four years natural gas will increase to 70% of the fuel mix. Coal, most of which has been imported from South Africa and Australia, is also being replaced by renewable sources, notably solar energy. As a result, the cost of power generation is about to drop significantly due to the relatively cheap cost of natural gas (which costs one fourth of diesel).
In addition, the Israeli public will benefit from taxes and royalties from the gas sales estimated at some US$100 billion in the next 25 years. Most of those funds will be invested in a national sovereign fund for the use of future generations. All, of course, in addition to the obvious advantage that natural gas is much less damaging to the environment than coal or fuel oil.
Besides the traditional need for Israel to always diversify its oil import sources, a new consideration has now emerged: diversifying gas export destinations. This, in turn, leads to another decision: Should Israel focus on regional destinations for its gas, such as Turkey, Egypt, Jordan and the Palestinian Authority (PA), or should it also aim at customers outside the region, including Europe and the Far East? By exporting to its neighbors, Israel might be able to strengthen its relations with them, yet the unstable political conditions in some of those countries and in the region as a whole pose complicated hurdles. Israel knows, however, that an inability to find export destinations quickly might result in an immediate halt to future gas explorations.
One of the most economically beneficial options would be to export gas to Turkey through a direct submarine pipeline. Such a pipeline to the southeast of Turkey in the Ceyhan area will be about 400 kilometers long and cost about $3 billion. Ceyhan, already a major petroleum port, is aiming to become an energy hub for transferring oil from the producing countries to different customers in the West.
If such a deal is realized, Israel will find a thriving Turkish market with a high demand for gas. Turkey is aiming to decrease its dependency on Russian gas and increase its transport of gas into the European markets. These goals will be possible after completion of the Trans-Anatolian Pipeline running from Azerbaijan through Turkey to Europe and the Trans-Adriatic Pipeline slated to connect the Trans-Anatolian Pipeline and go through Greece, Albania, the Adriatic and then to Italy.
For the Turkish pipeline option to materialize, bilateral relations between Israel and Turkey will have to improve, and the consent of Cyprus, with which Turkey does not have diplomatic relations, would be of critical importance.
A second option is to sell gas to Egypt. Two Memorandums of Understanding have already been signed with Union Fenosa, a Spanish company, and just recently with British Gas as well, in order to sell a substantial part of the Israeli potential export to the Egyptians. Being merely MOUs, these agreements can become binding ones only six months after the signing date. Egypt has developed a severe natural gas shortage despite its huge reservoirs because foreign companies are not investing in field development there; therefore, Egyptís two liquefied natural gas (LNG) liquefaction plants, that are owned and operated by the European companies, sit idle, and the Israeli gas is thought to be liquefied for export. The consent of the Egyptian government will also be required for the use of the Egyptian liquefaction facilities.
The third possibility is Cyprus. The Cypriot government plans to build a plant to produce LNG. The export of Israeli gas through Cyprus will help justify the construction of such a project in Cyprus as the island does not have enough gas of its own yet to do so. If completed, Israeli LNG could be exported to Asian countries such as China and India as well as to Europe.
Another LNG possibility is to utilize the new technology of floating LNG (FLNG), that is, to build a FLNG facility off the shores of Israel and selling its gas via tankers. Additionally, a domestic FLNG project would ease domestic security concerns that oppose relying on LNG facilities abroad.
Jordan and the Palestinian Authority
Another possibility is to export gas directly through onshore pipelines in the region to Jordan and the Palestinian Authority. Jordan has invested billions of dollars into switching its energy system to gas but, like Israel, lost its Egyptian gas source when it was interrupted by the frequent attacks on the Arab pipelines in Sinai. A decision from King Abdullah would definitely be needed in the case of gas exports from Israel, but once approved, the pipelines from Tamar and Leviathan reservoirs to Jordan could be constructed within three years. In the beginning of September it was announced that Israel's Leviathan partners signed a letter of intent to supply about 45 billion cubic meters of natural gas to Jordan's National Electric Power Company over a 15-year period.
Israel might also supply small amounts of gas to the Palestinian Authority for the two natural gas-based power plants that are being planned in the West Bank. In the case that negotiations between Israel and the PA resume and result in an agreement, it may be possible to develop the Gaza Marine natural gas field located 36 kilometers off the shore of Gaza. This relatively small gas field (1 TCF) can supply gas to the Palestinian Authority, Jordan and Israel. Although the consent of Israel will be required, as the modest demand in the West Bank and Gaza alone is not sufficient to justify the development of the field, the development of Gaza Marine can benefit the depressed Palestinian economy, which is in great need for additional sources of income.
In any case, the export of natural gas from Israel to markets in the Eastern Mediterranean can enhance stability and prosperity in the region and might enable greater economic and political cooperation between present rivals for the benefit of their peoples.