By Dr. David Wurmser
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.
Then, after Israel reopened its waters for exploration, the United States, which has no real role in the planned EastMed Israel-to-Europe gas pipeline, came out publicly against it and pressed for its cancellation, saying it is both economically unviable, as well as suggesting it is destabilizing since Turkey expressed strong opposition to it because it would go through Greece rather than through Turkey and it would service Greek Cypriot fields.10 Moreover, the pipeline appears to have run afoul of US environmental objectives, according to US Under Secretary of State, Victoria Nuland in June 2022 (four months after the Russian invasion of Ukraine):
“We believe it is too expensive, not economically viable and will take too long … And frankly, we don’t have 10 years, but in 10 years from now, we want to be far, far more green and far more diverse. When we think about hydrocarbons, both in the U.S. context and in the EU context, we are hoping for a quick transition.”11
The Israeli government did not respond, let alone push back on this inexplicable US pressure to halt consideration of the Israel-to-EU EastMed pipeline, and appeared at first to be unwilling to cross the United States on this. However, the government finally relented and signed two agreements – one with Egypt, Cyprus and Greece and one with the EU and Egypt, signaling an intent to realize this option despite US opposition.
A similarly lackadaisical, if not flailing Israeli attitude seems to inform its approach to the critical question of the northern reaches of its maritime Economic Exclusion Zone (EEC). And now, while the Israeli government has thus far refused to publish a map, it reportedly seeks a deal with Lebanon that would cede to Beirut well over 1000 km2 of surface under which no exploration has been done with the exception of the Qana block (Block 12 in Lebanon). That block alone contains a substantial field laying half in currently claimed Israeli waters (line 1, which had been set in 2011 with Cyprus), or one -third in the parameters of either the Hof (US pre-2022 proposed line) or proposed line (line 23) being worked out only three months ago on the basis of a June 2022 Lebanese claim, but is reportedly entirely removed from Israeli possession in the current plan (line 23/29 amalgam). One can only imagine what else lies in the ceded and unexplored 1000 km2.
In other words, the Israeli government has consistently adopted policies that halt exploration and diminish the possession of areas of potential reserves, at the same time it has disappeared in trying to encourage the development of transmissions structures or outright sabotaged them when it came ot U.A.E. Plans. Whatever the merits of the current proposal for an Israeli-Lebanese deal on the EEZ maritime line, its most disconcerting aspect is the attitude it reflects. Israel again displays a lack of determination to maximize and leverage its assets in the gas sector for major geo-strategic objectives, and instead seems almost without afterthought willing to cede areas that could, and by all estimates likely do, contain many more hydrocarbons prospects.
A month ago, the Israeli government signed with Egypt and Europe an agreement to supply gas to Europe. The optics were impressive, but the reality was empty. The Israeli government has signed agreements for such trade without any policies, nor with the appropriate underlying attitude, that will realize what they signed.
There has been no governmental urgency to resurrect the idea of a UAE connection to the EAPC structure. Nor has there been any high-level discussion of how to realize, let alone expedite, the EU-Israeli pipeline. There is no discussion about adding a second LNG terminal, and there has been no diplomatic approach to, let alone summit meeting with Cyprus to begin planning to build a structure to connect Israeli fields to Cyprus’ LNG terminal at Vassilikos. In addition, there has been no indication, nor approach to the UAE, to resurrect the UAE-to EAPC trans-Red Sea pipeline network plan. Moreover, there is no debate in Israel expressing concern about having the core of Israel’s export structure dependent on Egypt’s acquiescence as we enter an era when concerning pressures on Egypt are mounting.
When one widens the aperture a little, one also sees Israel’s curious and disturbing lack of urgency and lackadaisical attitude as a far broader affliction. For example, consider the behavior of the Israeli government over the last two years toward developing Israel’s port and freight rail structure strategically to establish itself as a major international Europe-to-Asia trade route overland supplement to the Suez Canal at a time when the canal is proving expensive, operating at capacity, slow and every other year shut down for weeks because of accidents. Modern port technology linked with a high-speed freight rail structure in Israel, which Israel’s rail authority has been pushing for quite some time, had been met with complete disinterest on the political level and has been frankly stalled entirely. The Indian multi-billionaire, Guatam Adani, having apparently a greater sense of strategic importance of Israeli ports than the Israeli government, may have saved Israel from itself by buying Haifa port several months ago.12 This occurred after a year in which the UAE had expressed deep interest in buying the port. The UAE’s sovereign wealth fund had even allotted funds to conduct a feasibility study of vast development for the Haifa port to connect Europe to Asia in trade routes. The Israeli government, as it did with the UAE effort to connect its natural gas structures to the EAPC, simply stalled on this offer until it faded. Were it not for Adani, who likely will work with the UAE, it is likely that Israel would have through inattentiveness allowed the port to pass to Turkish ownership under an American-supported consortium which had only limited interest in seeing the port emerge as a global east Mediterranean hub for Asian-European traffic.
Israel clearly wants to be seen as a strategic supplier of gas to Europe, but its aspirations are unmatched, if not betrayed, by its actions. Those actions seem determined to push Egypt and Lebanon to fill the vacuum being left by Israel. And it seems to be part of a larger baffling Israeli outlook, which simply fails to envision Israel as a major strategic player in any international trade, logistics or transmission structure. Ben Gurion, who may have labored under many flaws as a socialist but like all Israelis of his generation had an acute sense of national interest and an acute sense of strategy nonetheless, would be turning in his grave.