A strategic asset

Beyond the many economic, security and environmental benefits, the natural gas discoveries contribute to the strengthening of Israel’s foreign relations and serve as an integral part of its reciprocal relations with its neighbors. In our vision, the gas discoveries in Israel and Cyprus could serve as a bridge for broad regional cooperation in the field of energy and in other areas.

In the position paper presented by the Ministry of Foreign Affairs with regard to the Gas Framework, it stresses the importance of the strategic aspects of the natural gas discoveries: “The natural gas is a first-rate strategic asset. The gas serves as a catalyst for the State of Israel’s foreign relations as well as contributing to regime stability in the region. The very fact that Israel owns natural gas reservoirs, and thus has energy independence and the capacity to export to countries in the region and to Europe, makes it a country with a strategic asset and important political status that could serve as a catalyst for developing diplomatic and political relations with Middle Eastern countries and promoting regional cooperation. Overall, this situation could firm up Israel’s status as a key player in the global gas market, and in so doing promote Israel’s political and economic interests in the world.”

National security

According to the National Security Council position submitted to the Ministry of Energy in July 2015, “There are substantial political-security benefits to be derived from the possibility of anchoring elements of Israel’s relations with neighboring states and partners to peace agreements through the export of natural gas, thereby making a significant contribution to the national security of the State of Israel in a regional environment that is turbulent and dangerous. Intelligent use of the gas reserves could expand the sphere of influence of the State of Israel in the international arena, both in nearby and more distant areas.”

From the Council’s perspective, “Increasing the energy independence of Israel strengthens the country’s national security too. Expanding the natural gas system to incorporate a number of sources and a mix of independent supply channels will lead to redundancy.”

Regional collaboration

The large energy resources discovered in the Mediterranean have the potential to bring economic benefit to all the countries in the region and to improve the relations of Israel with the states in the region including Egypt, Jordan, Turkey, Cyprus as well as with the Palestinian Authority. The economic ties in the energy field may lead to strengthening of the relations between the countries in view of the economic and political benefits that arise for all the partners.

Gas agreements, which require engagement in long-term contracts (typically for decades), and which involve a physical connection between states via transmission pipelines, strengthen trade relations and contribute to regional economic stability. We believe that regional cooperation in the field of natural gas and energy, with the State of Israel at its center, will strengthen the political status of Israel and support the responsible and stabilizing players in the Middle East.

In October 2017, Delek Drilling and the Russian gas giant Gazprom signed a non-binding memorandum of understanding for cooperation and the setting up of joint work teams to identify, examine and promote new projects based on natural gas in Israel. The companies’ work teams will focus on examining the possibilities of developing transportation powered by natural gas (heavy vehicles, trains, and ships), agricultural equipment and others. This is a step that could lead to investment in infrastructure in Israel and to an increase in the demand for natural gas.

Export markets

Jordan

The first exports of natural gas from Israel were made in the fourth quarter of 2016, with the start of the supply of gas from the Tamar reservoir to the plants of Arab Potash and Jordan Bromine on the Jordanian side of the Dead Sea.

In September 2016, the Leviathan partners also signed a contract with the Jordanian Electricity Company (NEPCO) to supply approximately 45 BCM of natural gas for a period of 15 years for generation of power for the Jordanian domestic market.

Egypt

The Tamar partners have signed an agreement (on an interruptible basis) with Egyptian company Dolphinus Holdings for the supply of natural gas, based on the surplus gas quantities available to the Tamar partners over a period of seven years from the start of supply. In the agreement, a minimum cumulative quantity of 5 BCM was set for the first three years, intended for consumption in the Egyptian domestic market. This agreement depends on the establishment of infrastructure to allow the flow of gas from Tamar to Egypt.

The Leviathan partners signed a Memorandum of Understanding (MOU) with Dolphinus Holdings in November 2015, to negotiate the supply of up to 4 BCM of gas annually, for a period of 10-15 years.

The Tamar and Leviathan partners are signatories to MOUs to supply gas to the liquefaction plants of international companies British Gas and Union Fenosa Gas located in Egypt, and which liquefy gas intended for export to western Europe. The Leviathan partners signed an MOU with British Gas to conduct negotiations for the supply of approximately 7 BCM of natural gas for a period of 15 years; and the Tamar partners signed an MOU to conduct negotiations for the supply of approximately 4.5 BCM of natural gas for a period of 15 years to the liquefaction plant of Union Fenosa Gas. (Figure 1).

The Palestinian Authority

Israel is the main source providing electricity to the Palestinian Authority. The Palestinian Authority has started the process of creating power generating capacity of its own, inter alia by promoting the construction of electricity generation stations. Delek Drilling, together with its partners in the different projects, is negotiating with various parties regarding the possibility of supplying natural gas to power stations in Gaza or the Jenin area.

Turkey

Natural gas consumption in Turkey in 2016 stood at approximately 3.11 BCM and in 2017 stood at approximately 5.5 BCM – reflecting annual growth of about 17.8%. Turkey is completely dependent on the import of natural gas and LNG to meet the country’s domestic demand for natural gas, and is working to diversify its sources of supply and become a gas transit country with a pipeline that can supply central and western Europe.

Delek Drilling and its partners in Leviathan are in negotiations with various players in the Turkish market for the supply of natural gas to their market from the Leviathan reservoir; as well as with official entities in the Turkish government with regard to the export of natural gas to Turkey, in a project that would include construction of a marine pipeline from Israel to Turkey for the sale of natural gas to the Turkish economy.

Cyprus

Cyprus currently makes no use of natural gas, and the country is almost completely dependent on the importation of diverse petroleum-based products, with electricity generation in Cyprus based primarily (some 90%) on the combustion of oil-based products such as diesel oil. Furthermore, as an island and given its geographical position, Cyprus has difficulties in connecting to the energy infrastructure in Europe.

Following the discovery of ‘Aphrodite’ (the oil reservoir held by Delek Drilling, Noble and Shell), a possible source of local natural gas has been created in Cyprus. However, given the expected scope of investment required for development of the field and the limited scope of the domestic market in Cyprus, it appears that developing the find and supplying natural gas to the local market depends on the ability of the Cypriot authorities to promote establishment of an export infrastructure that will justify development and commercialization of the find.

Today, the government of Cyprus and the country’s electricity company are working to promote natural gas as a replacement for petroleum-based products for electricity generation, and Delek Drilling, with the rest of its partners in the Aphrodite reservoir, are in negotiations with the government gas company for the supply of natural gas to Cyprus from the Aphrodite reservoir.

International support

The US Administration is working constantly to realize the political and economic benefits of the natural gas discoveries in the Mediterranean basin. Its activity stems from a worldview that the energy ties could strengthen relations between Israel and its neighbors, contribute to stability in the Middle East and, going further afield, offer Europe a new source of gas in addition to the Continent’s current energy resources.

According to a representative of the US State Department on Energy in the Middle East [Special Envoy and Coordinator for International Energy Affairs], Amos Hochstein, “We have a remarkable situation where the self-interest of each of the parties in the energy sphere is identical.” The US Department of State also provided political support to the negotiations between the Leviathan partners and the Jordanian Electricity Company and lauded the signature of the MOU between the parties.

In December 2017, the Foreign Affairs Ministers of Israel, Cyprus, Greece and Italy signed an MOU to pursue an East Med pipeline project to take “Made in Israel” natural gas from the Leviathan reservoir to Greece and Italy. [Sources of changes suggested: https://www.reuters.com/article/energy-mediterranean-natgas/greece-italy-israel-and-cyprus-back-natgas-pipeline-to-europe-idUSL8N1O537F / https://www.neweurope.eu/article/greece-cyprus-italy-israel-sign-mou-east-med-gas-pipeline/] The planned pipeline is approximately 2,100 kilometers in length, has an estimated cost of 25 billion shekels, and its construction is expected to be completed in 2025.

At the signing ceremony, the Ministers noted that this is “a strategic infrastructure project that represents the common interest of the countries concerned and the European Union regarding natural gas.” The European Union representative estimated that Europe would need to increase its natural gas imports by 100 BCM per year as a result of the lower gas output in the North Sea, and that Europe sees in Israel and Cyprus a secure source for provision of gas in the future.