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Israeli discoveries of natural gas over the last 13 years are enough to allow not only self-sufficiency but also the potential for enough export to emerge as a geostrategic player in the hydrocarbons sector. If done properly and aggressively, Israel has the opportunity to establish itself as the main natural gas export hub in the eastern Mediterranean, servicing not only eastern Mediterranean gas suppliers, but Persian Gulf ones too, and become the conduit to supply Europe as much as a third of its import needs. And yet, Israel’s policies over the last year have undermined expanding its reserves, retarded and limited the development of its transmission structures, and all but sabotaged its ability to become a hub for gas regionally. Indeed, it seems as if Israel prefers regional plans to make Egypt rather than Israel such a major hub, including subordinating the export structure of its own gas to dependency on Egypt.1 If Israel, thus, seeks to establish itself a strategic player in the natural gas sector – let alone insulate its gas export structure from regional geopolitical instability — it will need to change not only its policies, but its assumptions and attitude.

Over the last decade, Israel has discovered roughly 200-250 billion cubic meters (bcm) of gas. Israel only consumes about 10-15 bcm of gas per annum. There are also other fields that suggest still more finds are possible,  such as the Zeus fields, which taken altogether could indicate Israel has still between 50% to 100% more gas than has hitherto been discovered. This means Israel has a hefty quantity that can be earmarked for export, even under the regulatory export restrictions imposed by the Sheshinski Committee framework.

Until now, Israeli export has largely been confined to its neighbors.  Currently, Israel exports up to 7 bcm of gas to Egypt per annum and 3 bcm to Jordan. But the quantity of gas discovered is clearly enough to contemplate export to Europe. Two recent developments, moreover, have further focused attention on the potential supply of Israeli gas to Europe. First, the invasion of Ukraine which has resulted in despair in Europe over supply. Israeli gas was seen as an attractive alternative, at least to some extent. Second, Energean, the company exploring and developing the latest fields in Israel announced on October 6 that it discovered another 12-17 billion cubic meters (bcm) of natural gas off its coast in the Hermes field and there is another field that might hold as much as 20 bcm more.

On top of Israeli gas, there is also the possibility, already suggested by the UAE, of pumping gas from several Persian Gulf lands via Saudi Arabia to the southern terminus of Israel’s Eilat-Ashqelon Pipeline Company (EAPC) in Ramat Yotam in Eilat, and then using the company’s right-of-way to build a gas pipeline (the current pipes carry oil) to transport the gas to the Mediterranean for transmission to Europe via Israel’s emerging export structure.  A potential collapse of Iran’s regime, which partnered with Israel decades ago before the Islamic Revolution to build this pipeline, could as well open up Iran’s vast natural gas deposits for Europe in addition to its natural Asian market.

In short, Israel has every possibility of becoming a major international hub of export of Persian Gulf and eastern Mediterranean gas, especially when considering the likelihood of more gas being discovered in Cypriot waters.

These facts and projections of reserves are relatively clear.  But the picture becomes more complex after that, especially concerning the transmission structures.  There are currently no direct transmission structures of gas from Israel to Europe.  The only physical way to export Israeli gas to Europe – which imports from all sources between 150-200 bcm per annum before the Ukraine war– would be through the existing Egyptian-Israeli pipeline structure, which then connects to either the Idku or Damietta gas liquefaction plants for loading onto liquefied natural gas (LNG) ships bound for Europe.  The combined liquefaction capacity of the two LNG plants in Egypt is about 30 bcm. The pipe from Israel to Egypt, however, only holds about 7 bcm per annum, and all the molecules flowing through it are already booked by Egypt for domestic consumption. Although Egypt found a very large reservoir of gas offshore in ENI’s Zohr field, bringing that field to full capacity has proven to fall short of originally expected timelines at this stage. Simply put, Zohr cannot flood Egypt’s market enough at this point to generate export surplus. At this point, it suffices only to offset the increase in Egypt’s domestic demand. And thus, Egypt will need to continue relying on all the gas Israel sends for its domestic use.

A second gas pipeline to Egypt is being built that will hold up to 11 bcm of gas, but it will take roughly three to four years to complete, and when it does, it is not clear how much of that gas will be consumed by Egypt and how much will be surplus to send to Europe via the two Egyptian LNG terminals.  Egypt’ domestic consumption is growing at a rapid pace, so clearly far less than the 11 bcm capacity of the pipeline will flow to the Idku or Damietta LNG plants for export.

Moreover, Egypt is politically problematic. It gets along with Israel well enough, but its economy is showing signs of grave danger – even potential bankruptcy. Indeed, JP Morgan estimated that:

“Egypt’s debt-to-GDP ratio is around 95%. The country is also experiencing one of the most significant foreign exchange outflows this year, estimated at around $11 billion. FIM Partners estimated that Egypt will have $100 billion in hard currency debt over the next five years, including a massive $3.3 billion bond due in 2024.”2

At the same time, the United States last month announced that it will deduct USD 130 million from Egypt’s annual aid amount as pressure on human rights concerns, which represents a material economic but a much larger psychological hit.3  And thus all coincides with dramatic cost increases in grain and other foodstuffs – price increases over which have led in the past to great upheaval and revolution in Egypt. To survive, it is likely that Egypt will not only face internal pressure to sell its own gas for foreign currency rather than use its export infrastructure for Israel’s, but it will also continue the drift it began under the Obama administration toward Russia’s and China’s orbits.  The pressures that led it in that direction a half decade ago now are exacerbated by the urgency of the current quest to obtain aid, cheap food and regional strategic support (such as in Libya).  Once further driven to seek support from Russia, one can only wonder how long it will be before the phone rings from Moscow telling Cairo that Moscow views with great disfavor Egypt’s being a conduit for exporting Israeli gas to Europe to replace Russia’s.  In short, if Israel’s current export structure to Egypt and possibly Europe emerges and survives then great, but Egypt is is not a structure upon which a fifth of Israel’s economy should depend.

A small amount of gas could also be compressed at the Hadera terminal (currently used for offloading, not onloading gas) in Israel to load gas onto compressed natural gas (CNG) ships for Europe, but there are very few of these CNG ships left in the world since their transport-capacity-to-cost ration is lower and the amount of gas they can load is quite a bit more limited than LNG ships, although at the ranges that Israel is from Europe (under 2500 km), there may be some cost offsets.4  With current technologies, Israel could only export about 0.5 bcm per year this way to Europe (with about 14 million m3 per ship).

Combined, under the most optimistic circumstances and assumptions, one can imagine up to 5-10 bcm per annum, about one third of Austria’s annual consumption, being transmitted to Europe. This does not amount to a globally and strategically critical production structure.

The only way Israel will emerge as either a major or reliable source or even hub for gas is by building direct transmission structures from Israel to Europe. One structure is already in process.  An offshore floating LNG platform is already being constructed to service Israel’s Leviathan field. It could theoretically service a capacity of approximately 15 bcm per annum of export.  Under current plans, however, this will take roughly another four years to build.

Second, there were plans by the EU and Israel to build a direct pipeline from Israel to Europe at a cost of about Euro 6 billion. Since it is still under planning, it is uncertain how much gas it would transport, but comparable pipelines in the Mediterranean carry about 30 bcm of gas. There could always also be an additional such terminal constructed if deemed economically viable.

Third, Israel could add a pipeline to Cyprus, and connect to a reinvigorated Vassilikos LNG terminal which like other land-based liquefaction plants could be imagined to reach 15-20 bcm capacity per annum.  This option has been considered but given the lack of urgent interest in Israeli gas internationally until the Ukraine war, this option was shelved for the time being.

Finally, returning for a moment to compressed natural gas, there is a new generation of CNG ships under design that may work effectively to service medium range routes under 2500 km, which is about Israel’s distance to Europe’s Mediterranean ports.5 Indeed, the EU has given Italian project developer, Naval Progetti SRL, a grant of Euro 12 million to develop such a ship.  These ships may be able to carry as much as 7 bcm per annum per train, roughly half that of an LNG terminal, but with less prohibitive up-front infrastructure costs (potentially using Israel’s already existing Hadera terminal). These ships, however, are not operational yet.

But for all this to happen, both Europe and Israel need to adjust their current attitude toward their gas sectors. If Europe considers its need for gas from the eastern Mediterranean to be urgent under wartime conditions and Israel appreciates the unique, acute strategic opportunity it has been handed, then the two could conceive of Israel’s gas hub not in terms of peace-time commercial timelines but as a Manhattan-project level effort. With such prioritization, it is conceivable that Israel could become within a few years a hub (with initial levels of robust export already in two to three years) for Israeli, Cypriot and Gulf Gas to a capacity of about 70-80 bcm per annum, which is about half of Europe’s import.

But therein lies the problem. Europe is shocked, but still coming to terms with what it means and what will be entailed in truly weaning itself off of Russian gas. Moreover, in Israel’s government, there appears to be a complete absence of any sense of urgency to match the magnitude of the commercial and strategic opportunity.

The spirit animating Israel’s left is alignment with Europe, and the spirit of Europe until Ukraine was toward moving away from hydrocarbons altogether and toward alternate energy sources.  Ironically, while Europe has been jolted into greater sobriety and began to take interest in diversifying its natural gas suppliers, Israel’s center-left government over the last year bought into more deeply the previously failed European concept and discouraged the development of its own hydrocarbons sector. This outdated and originally questionable attitude has led over the last 18 months to the following deeply flawed policies that suggest its new center-left government elected in 2021 was uninterested in developing the natural gas sector beyond what had already been developed:

In December 2021, the new Israeli government placed a moratorium on all further exploration of Israeli waters for natural gas.6  Israel’s prime minister had said beforehand that he was eager to join the new international climate consensus in pushing for alternatives instead of hydrocarbons. Moreover, his government which relied on leftist parties, who held the energy, science and transport ministries portfolios, with a strong environmental program.  Afflicted by reality, when Russia invaded Ukraine, the Israeli government reversed its decision yet again and reopened its waters for further license tenders and exploration.7

First, Israel signed a deal in October 2020 to bring UAE gas to the Mediterranean.8 But then a year later in November 2021, only one month before it imposed the moratorium on licensing and exploring further prospects,  the new Israeli government reversed the previous government’s agreement and, citing environmental concerns, canceled the UAE’s deal to use Israel as a major transmissions structure for its gas and that of its neighbors.9 This reversal not only undermined Israel’s credibility, but also limits greatly, if it is not reversed soon, the amount of gas that could ultimately be sent to Europe. If Israel alone must fill the transmission structure with only its gas, then it holds in its entirety about three years of the sort of capacity (assuming it sends every molecule it has to Europe beyond annual domestic consumption) such a robust transmission structure could export to Europe. And that would mean that after three years, neither Israel nor Europe have any Israeli gas left. Even if Israel finds more gas than it has already found, that only extends the inevitable to a total of five to six years. On the other hand, export of gas from the Gulf would transform this niche “bump” of Israeli gas into an ongoing export structure for regional gas for decades, and thus raise Israel to the level of a major global strategic interest. Otherwise, Israel will remain a niche, boutique and transitory asterisk in the history of Europe’s energy mix.

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