A Look at the Leviathan's Export Options

Last week marked the start of advanced talks between the Leviathan partners and Woodside in sight of the signing of a deal that would allow the Australian giant to purchase 25% of Israel’s giant 19 tcf field for an upward revised price tag. The MOU reflects important changes in comparison to what was originally discussed between the parties in December 2012 when Woodside was looking to acquire 30% of the field for a lower price. The amendments could be explained by the revision to the increase of the size of the field and by Israel’s recent shift in export strategy more towards a pipeline-based approach than an LNG strategy.

Selling gas to immediate neighbors

Israel’s adoption of a ‘pipeline diplomacy’ and its consideration of opting for a pipeline to export and monetize its natural gas would reduce infrastructure costs and hence increase the value of the field. Woodside and the Leviathan partners are expected to reach a ‘fully termed’ agreement by March of this year. The recent developments challenge original speculations that Israel will opt for an LNG terminal either onshore, offshore or in neighboring Cyprus for the flexibility liquefied natural gas offers. Such a plan would have been made in conjunction to Israel’s eventual deals with its immediate neighbors. Israel is currently in talks with Jordan, Egypt and the PA in sight of the signing of natural gas deals that would allow Israel to sell its hydrocarbon to its thirsty neighbors. It is worth exposing all the other options for exporting the Leviathan gas that could be chosen exclusively or mutually.

A pipeline to Turkey

Delek and Ratio were the first to express an interest in a pipeline to Turkey, followed recently by Noble. Israel’s apology to Turkey in March 2013 over the Mavi Marmara incident made talks between the two countries possible. The Israeli Antitrust Authority even allowed negotiations between the Leviathan partners and Turkish companies. Turkey makes sense from a commercial point of view. It is a large and growing market with few indigenous resources. However, geopolitics might constitute a hurdle to such a plan with the problem of the division of Cyprus still unresolved. While the Cypriot government would not allow a pipeline from the Leviathan to Turkey crossing its economic waters, a pipeline through Lebanese and Syrian waters is out of the question. Whether natural gas would be an incentive to find solutions to the complicated and embittered diplomatic relations in the Eastern Mediterranean is another question.

An onshore LNG facility in Israel

An onshore LNG facility would theoretically offer Israel flexibility in terms of the choice of the consumer and independence in terms of its gas dealings. Israel’s years of energy vulnerability depending on Egyptian gas to satisfy its natural gas needs would explain why Israel would prefer to be in a position of control now that it is on the other side of the spectrum. Woodside’s eventual acquisition of 25% of the Leviathan would also mean that the Australian could inject its extensive LNG expertise to ensure the success of such a project. An LNG project would also bring a lot to the economy, in terms of job creation. However, such an option has not received substantial backing from officials. A coastal site that would be home to an LNG plant and/or security concerns might push Israel away from an onshore LNG facility.

A floating LNG

In the absence of an adequate coastal site, why not go for a FLNG? Energy experts seem to dismiss this undertaking given that FLNG is usually adopted in the case of gas found far from shore and in limited quantities, something that does not apply to Israel, particularly given that additional deposits might be discovered.

The use of Cyprus’ LNG

Cyprus is currently in the process of planning an LNG plant in its Vasiliko coastal site. Despite the recent downsizing of the Aphrodite field (from a 5-8 to a 3.6-6 tcf range) in Block 12 of its EEZ and Israel’s uncertain collaboration in the project, Cypriot officials are keen to see the project come to fruition. Further exploratory activities will take place in 2014 and their success would justify the viability of the endeavor. Israel’s backing would have allowed the island to move forward with the plan in a shorter period of time. Noble Energy’s involvement in both countries and the MOU signed between Cyprus, Noble and its Israeli partners in July 2013 led to believe that the two countries would join forces to finalize the plant by 2016.

Conclusion

Israel appears to be considering diverse options and it is not unlikely that it will end up opting for several routes in conjunction to diversify its risk and achieve many goals at once: diplomatically, economically and on a security level. Israel has revealed a meticulous approach since the start of its energy path be it in deciding on export quotas or in the early management of future gas revenues. It will be a while before further details unfold and the whole picture of Israel’s export policy comes together.

Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean.  Email Karen on ayat_karen@hotmail.com. Follow her on Twitter: @karenayat