Israel: Export Quotas Decided, Export Routes Debated
Israel has now closed the export quota debate. The Supreme Court of Justice ratified the Israeli government’s June decision to export 40% of the gas, to the relief of investors involved in its shores. The satisfaction of investors is paramount for Israel to persevere in its path towards becoming a major natural gas exporter.
LNG or pipeline?
How Israel will opt to transport its gas to potential customers is still questionable. Identifying the customer could be a starting point. The geographical location of the latter tremendously affect how Israel will choose to deliver its gas - via pipeline or LNG - and therefore who its partners will be. The options discussed to date are various and despite the fact they all present obstacles of political, technical or economical nature, none has been eliminated.
Who is the customer?
Israel might be considering selling its gas to Asian customers who pay a higher price than the rest of the world. Europe, with its strong dependence on Russia, would also be an obvious customer. Europe is looking to diversify its energy portfolio, loosen Russia’s grip over the market and find new sources that would satisfy its additional needs. Israel repeatedly expressed its intention to start with its immediate neighbours while it solves the problem of delivering gas to further parts of the world. Jordan and Egypt, with their close proximity to the country and their energy problems - Jordan being severely energy thirsty and Egypt suffering from shortfalls of natural gas - would have been obvious customers to start with. However, Israel’s tensed relationship with its Arab neighbours might stand in the way of such an energy collaboration. Historically reliant on Egyptian gas, Israel stopped receiving it after several attacks on the pipeline that carried gas from Egypt to Israel since the 2011 Arab Spring.
What are the options?
Israel could positively respond to Cyprus’ partnership proposal. Despite the smaller quantities of gas encountered at the Aphrodite field in Block 12 of its EEZ (100-170 bcm), the island intends to move forward with its plan to build a $12 billion liquefied natural gas facility in its Vassiliko coastal site. Having Israel’s support would mean reduced costs for the cash-strapped island. Total, ENI and Kogas will start exploration activities off the island’s shores in 2014. However, Cyprus is keen to move ahead with its project in the shortest delay to fulfil its ambition of becoming a natural gas exporter. Its domestic needs being negligible, most of the natural gas encountered in its waters will be dedicated for export. Israel could use the island’s facility to process and transport its gas. Israel might also be considering the pipeline option.
Recently restored diplomatic relations between Turkey and Israel led many to think that the two countries were planning an energy collaboration. A pipeline from Israel’s 19 tcF Leviathan to Europe via Turkey has been considered a potential route for israeli gas. Turkish groups have offered to build the infrastructure from Israel’s Leviathan to the Turkish Port of Mersin or Jihan in southern Turkey.
Can Israel work with both?
Those two options are not mutually exclusive. Israel might consider investing in both and diversifying its export routes. Its meticulous approach in achieving a final decision in regards to export quotas is an indicator that a similar approach will be adopted when it comes to opting for its routes. Israel’s long history of energy dependence justifies its keenness to stay on the safe side: keeping enough gas at home and ensuring that its energy ambitions do not depend solely on a foreign partner.