Cyprus Mail
CM Regular Columnist Opinion

Future direction of Israel and East Med energy

By Charles Ellinas

Israel’s energy and its direction was the subject of a recent two-day conference in Tel Aviv. It examined the international, regional and Israeli energy markets, development of oil&gas resources, regional gas exports and cooperation, business opportunities, investment and finance and price impact.

The keynote speech was given by Yuval Steinitz, Israel’s energy minister, who made a commitment that coal-fired power generation will be phased-out by 2030, creating more opportunities for natural gas and renewables. This, he said, will lead to natural gas taking an 80 per cent share of the electricity generation market by 2030. He was confident that these developments will succeed and will transform Israel’s energy sector over the next twelve years.

Amit Mor, CEO of ECO Energy and the organiser of the conference, opened the proceedings with a review of global trends and their impact on energy sources and prices, the Israeli and international energy market, and expanded on the question: where is the Israeli energy sector going? He concluded that natural gas and renewables will enhance Israel’s energy and environmental security.

Bini Zomer, VP Regional Affairs Noble Energy, started his presentation by expressing surprise that there appear to be doubts about the progress of Leviathan. He confirmed that drilling of four production wells will be completed in 2018 and that phase 1A will be producing 12bcm/yr. The project is 27 per cent complete, progressing as planned, with first gas expected in 2019. All major equipment packages are in fabrication, and pipeline installation is planned to start in 2018.

He was followed by Yossi Abu, CEO of Delek, who also confirmed that first gas from Leviathan will arrive in Israel in 2019. He reviewed regional and global markets and increasing gas demand in Israel to conclude that prospects for Leviathan’s gas are good. He was confident that gas exports to Egypt, even with Zohr, Turkey and Europe will succeed, with Israel becoming a hub connecting Africa to Europe.

Yaron Daissy, Energean Israel engineering manager, presented progress on the development of the Karish and Tanin gas-fields in Israel. The combined resources of the two fields are 67bcm of natural gas and up to 33million barrels of oil-equivalent (boe) of light hydrocarbon liquids, enabling Energean to produce about 4bcm/yr. Production is scheduled to start in 2020.

Yigal Landau, CEO of Ratio Oil, said that the government’s first offshore licensing round had limited success. A lot of work still needs to be done to convince international oil companies to come to Israel. He believes that the gas framework deal agreed last year between the government and the gas companies needs to be reopened and updated to reflect new realities. Key challenges are limiting exports and the requirement to connect every gas discovery to the domestic Israeli gas network. This is impractical, especially for small fields, but also because the Israeli gas market is fast-becoming saturated.

Ron Adam, special envoy for energy at Israel’s foreign ministry, interviewed Stelios Himonas, general director of Cyprus’ energy ministry. They emphasised the close relationship between Israel and Cyprus, driven by energy. Himonas talked about the success of Cyprus’ third licensing round, adding that attracting such major international companies to the East Med is a vote of confidence to the region. He also talked about Cyprus’ plans to increase use of renewables and import LNG. Regional cooperation is key to developing regional energy, including electricity interconnectors and gas pipelines.

Himonas talked about the MOU for the EastMed gas pipeline, adding that such inter-governmental agreements are key to facilitating gas exports from the region. However, the governments’ role is to facilitate – not to build pipelines. This is the role of gas companies.

Myself and Amir Foster, Head of Strategy Association of Oil & Gas Exporting Industries discussed global gas prices and regional markets and their impact on developing and exporting East Med gas.

The world is going through a major and permanent transition from high-carbon to low-carbon energy, with a relentless increase in the use of renewables at the expense of fossil fuels. These factors also impact global gas markets and prices. Ensuring that gas remains cheap and affordable is critical to its long-term prospects against renewables and coal.

The global LNG market is growing but remains competitive. US LNG is changing global LNG markets the same way as shale oil changed global oil markets. A new wave of US LNG is being developed, finding ways to compete on price through low liquefaction costs and access to cheap shale gas. There is a convergence in global gas prices, likely to stay low forever.

Recently there were successful bi- and tri-partite meetings involving Cyprus, Egypt and Greece and separately Israel. Politically, it is very important to the countries involved but also in promoting stability and cooperation in the region.

The meetings resulted in inter-governmental framework agreements facilitating new pipelines, such as EastMed. Even
though essential, before these become projects there is a need to secure gas sales agreements, and with low gas prices it is very challenging. It is only after sales are secured that the oil and gas companies will make final investment decisions and commit the multi-billion dollar investments required for construction.

As a potential regional market, Turkey has changed its energy strategy and future energy mix, driven by security of supply concerns, as well as costs. The emphasis now is to maximise utilisation of Turkey’s lignite and coal potential, by increasing their share to 30 per cent of the country’s electricity mix by 2023. It also includes increasing renewable sources to 30 per cent and nuclear power to 10 per cent, while reducing the share of natural gas to 30%. Turkey is also targeting to reduce energy intensity by 20 per cent by 2023.

According to market data, the cost of Russian gas to Turkey last year averaged $5/mmBTU and in March 2017 was $5.2/mmBTU. Coal and domestic energy supplies cost even less. East Med gas has to compete and beat these prices, and may no longer be Turkey’s high priority.

Another potential regional gas market, Egypt, expects to become self-sufficient by end of 2018 – and start gas exports after 2020. Zohr, with 850 bcm gas, will achieve first gas in December, ramping up production to 10-12 bcm/yr by mid-2018, reaching a plateau of 27 bcm/yr by 2019. In addition, there are 12 gas projects currently under development, expected to bring an additional 55-65 bcm/yr gas on stream by 2019, with more to come.

Recent projections of Egyptian gas supply and demand made by OME, based on data from companies operating in Egypt, which are its members, show that gas surplus for export could reach 20-35 bcm/yr by 2030. This is supported by estimates announced recently by the petroleum minister. This will more than fully utilise the existing liquefaction capacity of Idku and Damietta LNG plants, with a combined capacity of 17.5 bcm/yr. It is clear that Egypt has enough gas to cover domestic consumption and resume LNG exports.

Developing and exporting East Med gas is a challenge, especially in the prevailing low price environment globally.

Dr Charles Ellinas is nonresident senior fellow at the Global Energy Centre of the Atlantic Council
@CharlesEllinas

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