How Woodside's Leviathan Withdrawal Affects Israeli Export Options
Woodside’s withdrawal from the Leviathan deal leaves the door open to various speculations regarding Israel’s
export strategy. The parties were engaged in serious talks that could
have led to the Australian giant acquiring 25% of the Leviathan - a 19
Tcf field located 130 kilometers of Haifa, in waters 1,500 meters deep
and operated by Noble Energy.
The parties had previously signed an MOU on February 7 preparing for
the final signing in March 27. The closing of the deal failed to happen
as expected in March due to a disagreement
between the company and the Israeli Tax Authority. Despite Woodside and
the Leviathan’s partners pledge to pursue their pourparlers, they
recently declared the end of the negotiations saying they had ‘failed to
reach a commercially acceptable outcome’.
Woodside and the Leviathan partners' decision to part
ways has numerous ramifications. The Australian company would have
brought in its LNG expertise. Without it, it is unlikely that Israel
will opt for an onshore LNG terminal to export its natural gas to export
markets. If Israel did not prove to be too lenient towards Woodside, it
is perhaps because the newly hydrocarbon-rich country has other plans
for itself. And it is not to be dismissed that it might be inclined to
diversify its export routes to ensure its robustness vis-à-vis
adversity. Such a philosophy would not be hazardous; in fact, Israel
suffered for a long period of time from its dependence on Egyptian gas
supplies. The disruption in the flow of gas from its Egyptian neighbour
due to the sabotage of the Arab Gas Pipeline was a wake-up call for
Israel to achieve energy independence and strengthen its energy
security. When it comes to export routes, and given the complicated
geopolitics of the region, a combination of various scenarios is
foreseeable.
Jordan too experienced a similar vulnerability towards
Egypt, given that the Hashemite Kingdom has been also highly reliant on
imports from Egypt to satisfy domestic demand. Jordan suffered from the
disruption in the flow of gas in the aftermath of the Arab Spring and is
currently undergoing a severe energy crisis due to that. Israel, taking
advantage of the momentum, and whilst it studies possible solutions to
reach further markets, decided to start by exporting to its immediate
neighbours: a Jordan in desperate need of cheap natural gas imports to substitute the Egyptian gas, an Egypt suffering from domestic gas shortages due to export obligations and a growing population, and the Palestinian Authority.
In January 2014, the Leviathan partners entered a USD
1.2 billion deal to sell 4.75 bcm to the Palestine Power Generation
Company. In February, the Tamar partners agreed to sell the Jordanian
firms Arab Potash and Jordan Bromine 1.8 bcm of natural gas over 15
years for USD 500 million. Furthermore, the partners of the
Tamar field signed a letter of intent with Spanish firm Union Fenosa
Gas to supply gas to the company’s existing gas liquefaction facilities
in Egypt. Israel would not only be selling gas to the Egyptians, but
would use their export terminals to reach export markets, such as Europe
or Asia where gas prices are higher than the rest of the world.
Whilst exporting to immediate neighbours seems a logic and simple endeavour, Israel is unlikely to limit itself to its environs. How Israel would achieve such reach is still a matter of speculation. Because a deal with Woodside is no longer a possibility, the remaining options would be using Cyprus’ projected LNG terminal in Vassilikos, using an FLNG or exporting gas via an undersea pipeline that would connect the Leviathan field to the Turkish coast.Turkish energy companies Turcas Petrol and Zorlu Holding have recently announced that they are considering building a pipeline which may cost $2-$2.5 billion and could supply 7-10 billion cubic meters of gas annually to Turkey via a 500-kilometer undersea route.
The prerequisite to such a solution remains the same: a
solution to the Cyprus conflict given that such a pipeline would have to
cross Cyprus’ exclusive economic zone. Joe Biden’s recent visit to the
island created new hopes that the talks would this time progress and
potentially reach a settlement. The second necessity is the
reestablishment of trust between Israel and Turkey:
despite Netanyahu’s apology to the Turks in March 2013 over the Mavi
Marmara flotilla incident and the restoration of their diplomatic ties,
to date, their relationship remains fragile.
Karen Ayat is an analyst focused on energy geopolitics. Email Karen on ayat_karen@hotmail.com. Follow her on Twitter: @karenayat
Link to source: http://www.naturalgaseurope.com/woodside-withdrawal-leviathan-deal-israel-export-options?utm_source=Natural+Gas+Europe+Newsletter
