Who will Israel sell its gas to?

In the rush to exploit the Eastern Mediterranean’s new found energy wealth, Israel has emerged – alongside Cyprus – as the most active and motivated among the many laying claim to the region’s offshore potential.

Working mostly with Houston’s Noble Energy, Israel has not only shown the most progress towards exploration and production in the region, but also passed an export scheme that would allow 40 percent of the country’s resources, promising billions in revenue.

Over the last two years, a number of viable export options have emerged, including Europe-bound pipelines and Liquefied Natural Gas partnerships with nearby Cyprus, supporting the notion that Nicosia and by association Athens, could become regional energy hubs. However, recently a series of agreements and new project announcements suggest that Israel is looking closer to home for their near-term export needs.

Shortly after the New Year, it was announced that a Palestinian electric company would be the first to sign on to purchase gas from Israel’s operations in the Leviathan field, which makes up much of the country’s offshore presence. According to local press reports, the Palestine Power Generation Company inked a 20 year deal for about $1.2 billion – or 4.75 billion cubic meters – of natural gas. Two days later, Bloomberg reported that Israel was now planning a nine mile, eastbound pipeline to supply Jordan with natural gas. While the new project was announced by Israel’s Ministry of Energy and Water Resources, the effort and the country’s local focus had the backing of its largest corporate partner.

“We will be able to market more gas regionally at lower capital cost because all of these regional markets are basically using pipes, and in some instances they’re connecting the pipes that already exist,” said Noble CEO Charles Davidson, according to a Bloomberg report.

The move reflects a recent focus on regional export options rather than looking to Europe or more distant consumers by way of LNG options. While Israel has not dismissed such export alternatives, pursuing LNG will require significant initial investment, with single plants costing billions to build. Meanwhile, a Jordan-bound pipeline can be completed for significantly less and is expected to be operational by 2016.

While cheaper and more convenient form a logistical standpoint, looking to markets like Jordan and Egypt expose pipelines and other downstream facilities to regional unrest. This is most notable in the case of Egypt and existing pipelines through the Sinai Peninsula. Once home to significant eastbound natural gas traffic into the Israeli market, the area erupted in attacks following the collapse of the Egyptian government of Hosni Mubarak in 2011. With the military’s attention drawn back towards the capital, the area saw over a dozen direct attacks on local pipelines, shutting down traffic to Israel and Jordan. While the country’s two government’s since have pledged swift action against militant groups in the area, the year ended with another gas pipeline explosion.

To be sure, Israel’s offshore efforts and gas potential have helped change the diplomatic dynamics of the Eastern Mediterranean. After all, the country’s recent diplomatic progress with Turkey was likely the result of Israel’s ability provide Ankara with gas in the future. However, with enough threats emerging from outside the region’s state actors, relying on local pipelines and exports options will remain a gamble – though one Israel seems willing to take.

http://www.forbes.com/sites/christophercoats/2014/01/09/who-will-israel-sell-its-gas-to/?ss=business%3Aenergy