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    Eastern Mediterranean: Deals in the Making



Israel commenced various gas talks regionally. Natural gas will play a tremendous role in altering the Eastern Mediterranean energy landscape.

by: Karen Ayat

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Natural Gas & LNG News, News By Country, , Egypt, Israel, Jordan, Top Stories, East Med Focus

Eastern Mediterranean: Deals in the Making

Woodside and the Leviathan partners recently launched talks to allow Woodside to purchase 25% of the Leviathan field. Discussions are expected to reach a binding agreement by March of this year. An original MOU was signed between the Australian giant and the partners in Israel’s largest field in December 2012 but the deal did not move forward since then due to Israel’s internal debate over export quotas.

It was not until October 2013 that the Supreme Court ratified the Israeli cabinet June 2013 decision to allocate 360 bcm of natural gas of a total of 900 bcm to exports. The June decision ensured that Israel would be reserved around 540 bcm to use over 25 years (or 60% of the total proven reserves then). What is not highlighted enough is that the cabinet introduced in June another significant change: sales to immediate neighbors would be booked as exports; in other words, they would reduce the quota allocated for exports and keep Israel’s share unscathed.

The reason this detail is important is because Israel, and as demonstrated in the past months, does have the ambition to export some of its natural gas via pipeline to its immediate neighbors in need of natural gas. Now that the decision to export the gas is final, Israel commenced its gas talks regionally and it is no doubt that natural gas will play a tremendous role in altering the Eastern Mediterranean landscape in the years to come.

Israel and the Palestinian Authority

The Palestinian Power Generation Co. was the first to sign a 20 year USD $1.2 billion deal to purchase 4.75 bcm of gas from the Leviathan group. A USD $300 million power plant is expected to be built over the next 3 years in Jenin and will be supplied gas from the Leviathan. The private deal attracted a polemic around whether gas supplies from the Leviathan to the PA should be considered ‘exports’1, ie as sales to a foreign state and hence booked as exports reducing the export quota or if the sales to the PA should reduce the quota allocated for the Israeli market instead. Given that the PA is not ‘defined’ as a state in the absence of a peace treaty between Israel and Palestine, the answer is tricky.

Israel and Jordan

Israel is also considering selling gas to neighboring Jordan. A 15 km pipeline connecting Israel at Sdom to Jordan is expected to commence in 2015 and be completed by 2016. Jordan and Israel both suffered from disruptions in the flow of Egyptian natural gas in the aftermath of the Arab Spring that toppled Husni Mubarak from office. Jordan is highly reliant on natural gas as 88% of its energy needs are satisfied by the hydrocarbon.

Israel and Egypt

Egypt, with a growing natural gas demand and ongoing export obligations has also expressed an interest - not yet materialised - to import gas from Israel. Technically a simple endeavor, the gas can simply flow in the opposite direction than it did historically, from Israel to Egypt. Egypt has also been reportedly in talks with Cyprus. The island is in the process of developing its energy industry and is looking for partners in the region to sign natural gas exploitation agreements.

The various talks and deals are still in early stages of their developments. The Levant basin riches will no doubt play a tremendous role in building new alliances and creating new sensitivities and it will take a few years before the energy map is shaped in the region.

1- See Lior Gutman, Israel reviews gas exports to ‘Palestine’, 5 February 2014, Al Monitor, http://www.al-monitor.com/pulse/business/2014/02/israel-gas-export-palestinian-authority-leviathan.html

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