Changes to Israel gas regime a possible threat
By Elias Hazou
On the face of it, Israel’s recent decision to fast-track its natural gas development plans could impact Cyprus’ own export ambitions, though this is not cast in stone, an energy expert has told the Cyprus Mail.
Over the weekend, Israel’s economy minister, who had opposed waiving normal antitrust laws to give rapid approval to a framework deal to develop the Leviathan and Tamar gas fields, tendered his resignation.
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| LNG plant at Idku, Egypt |
The Leviathan partners earlier signed a memorandum of understanding (MoU) with the Idku LNG plant in Egypt, to supply that plant with about 70 per cent of its capacity.
And the Tamar partners have concluded a separate MoU to supply gas to the LNG plant at Damietta, Egypt.
These two projects are in direct competition with Cyprus. And, says analyst Charles Ellinas, were the deals to be finalised they would definitively obviate Egypt’s need to import Cypriot gas.
In those terms, the re-activation of Israel’s export plans do pose a ‘threat’ to Cyprus.
But there a number of ‘ifs and buts’, said Ellinas.
First, it will take some time for the Israeli government to formalise any deal with the Leviathan and Tamar partners.
Second, and perhaps more significant, are the currently low oil and gas prices, making any major infrastructure investment a boondoggle.
Ellinas estimates that it would cost $6 per mmbtu to pipe Israeli gas to Egypt. The gas would then have to be liquefied at Idku/Damietta, then exported to Europe and regasified – further driving up the price.
Since natural gas is now fetching $6 to $7 in European markets, it’s evident that Israeli gas exports are not competitive.
“In other words, we are where we were before,” Ellinas commented.
The one project which is not in direct competition with Cyprus is Israel’s plan to sell Tamar gas to Egypt for domestic consumption. If clinched, that would tide Egypt over until their recent Zohr discovery comes on-stream.
But this would be a short-term deal – for about five years – and thus not a challenge to Cypriot intentions to conclude a long-term supply agreement with Egypt.
Ellinas reiterated the need for Cyprus and Israel to wrap up a unitisation agreement.
Despite talks lasting years, the two nations have yet to strike up an agreement on the exploitation of cross-border gas in their respective Exclusive Economic Zones (EEZs).
A small part of the ‘Aphrodite’ reservoir lies within the Israeli EEZ, and within an offshore bloc licensed to the so-called Pelagic consortium.
Without a unitisation agreement Cyprus cannot proceed to sell its ‘Aphrodite’ gas. Beyond that, it could even complicate plans for joint Cypriot-Israeli exports to Turkey, if and when the Cyprus problem is solved.
It’s understood that discord between the involved companies – Noble and Delek on the Cypriot end, and the Pelagic consortium on the Israeli side – concerning the distribution of the Aphrodite gas proceeds has prevented a deal from being struck.
Absent a unitisation agreement, Cyprus could in theory go ahead with separately developing the Aphrodite field – but so would the Israelis.
The Aphrodite reservoir is geologically compartmentalised. Some of the ‘compartments’ extend into the Israeli EEZ. Thus, were the Israelis to start production, they would not only be taking the gas located inside their own EEZ but also ‘sucking out’ some of the Aphrodite gas inside the Cypriot EEZ.
However that is an unlikely scenario, said Ellinas.
Meanwhile, the Cyprus Natural Gas Public Company (DEFA) has requested from the three companies and consortia bidding for a natural gas supply tender to extend the validity of their proposals until December 18.
The previous validity period expired on October 31.
All three remaining bidders have agreed to extend the validity of their proposals. The preferred bidder is understood to be Vitol, with Greek consortium M&M ranked second.
It’s also understood that Delek was never out of the race. Back in February, Delek announced to shareholders that it had not been asked by DEFA to renew their proposal.
But the Mail is told that this was due to a miscommunication at the time between Delek and DEFA, which was subsequently corrected.
But given that, under the tender, the date of first gas supply must fall between January 1, 2016 and June 30, 2017, it is doubtful whether Delek can deliver gas via pipeline within that timeframe.
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