Israeli gas plans move tentatively ahead
Geopolitics could harm Leviathan export prospects just as the signs are looking good
There are two distinct perspectives to the planned development of Israel's giant (22 trillion cubic feet of reserves) offshore Leviathan natural gasfield. From one side, signs today are that this huge gas find, discovered in December 2010, is finally on its way to monetisation. From the other perspective, the prospects look less promising.
The optimism is on the Israeli side. In February, the Delek group, holder of a 45.34% share in the Leviathan project, announced that its subsidiaries Delek Drilling and Avner Oil Exploration had received loans from Israeli and international banks worth $1.75bn for their share in the cost of developing the field. Chief executive Yossi Abu said the financing deal meant that Leviathan had "taken a significant leap forward," with the aim of gas flowing to Israel and beyond by end-2019.
In late February, Noble and its partners, after many delays, approved the final investment decision (FID) for a limited first phase of the field's development, involving the drilling of four subsea wells, each with 300m cubic feet a day capacity. The total cost of phase will be $3.75bn.
Unusually, given the sum involved, the FID has been approved without a watertight gas-sales export agreement in place. The only firm customers thus far are two Israeli power companies. Selling gas beyond the country's borders is where the second, less promising, perspective of Leviathan's prospects comes into play.
Israel has been struggling for years to find ways of exploiting volumes of discovered offshore gas which far exceed domestic demand, its efforts dogged for a time by domestic anti-trust disputes that threatened the whole Leviathan venture.
Another problem was finding markets for the gas. After unsuccessful attempts to interest Egypt in Leviathan sales, the collapse of the Cyprus liquefied natural gas option and political obstacles hindering proposals to build a pipeline to Turkey, there was relief in 2016 when a $10bn inter-company deal was signed to supply 3bn-4bn cubic metres (106bn-140bn cf) a year for 15 years to Jordan's state electricity company, Nepco.
But in Jordan, public reaction was, to put it mildly, negative. Even though Israel and Jordan have been bound by a formal peace treaty since 1994, anti-Israeli sentiment among Jordanians remains strong. News of the gas-import agreement led to street protests in Amman and elsewhere.
The Jordanian authorities insist that the deal is essential for a country that relies on energy imports and has the added burden of caring for more than one million Syrian refugees. Nepco estimates that the purchase of gas from Israel would trim around $0.6bn a year from Jordan's energy-import bill. But the Jordanian government stopped short of signing an inter-governmental agreement with Israel, a necessary move to enable Leviathan gas to reach Nepco.
The Jordanian signature is still awaited. Now, with the election of Donald Trump, the authorities in Amman may be even more cautious than before. The new US president's obvious close rapport with Israeli premier Benjamin Netanyahu, his election promise to move the American embassy from Tel Aviv to Jerusalem and his apparent dismissal of a two-state solution to the Israel-Palestine crisis—these have all served to darken the mood on the Jordanian street.
The Amman government will need to think hard before approving the import of Israeli gas, given the uncertainties surrounding Trump's Middle East policies and simmering public anger in Jordan. In the opinion of an EU diplomat in Amman, an imminent decision "is unlikely. Many indicators here now are flashing red."
The frustration of the two major parties to the deal is obvious, for the nuts and bolts are in place. The export agreement stipulates that gas will come ashore, via a fixed platform, in northern Israel before being delivered to Nepco "at the exit of the Israeli transportation system", on the Jordanian border.
It all sounds so simple. But straightforward technical steps don't take into account the often obstructive impact of Middle Eastern geopolitics, more unpredictable than ever in the Trump era.