Israel laying down local export options for billions in gas

As Israel seeks out possible export options to move their offshore gas reserves out of the Eastern Mediterranean and to lucrative markets in Europe and Asia, local agreements are providing some near-term opportunities.

This week, Israel and its production partners in the offshore Tamar natural gas field announced a $500 million, 15 year plan to sell gas to two Jordanian chemical companies. Marking the first time Israeli gas has been designated for sale beyond its own borders, the deal with supply 66 billion cubic feet to Jordan, according to Reuters. The deal provides some gas relief for Jordan, which has seen its imports threatened on several occasions over the last three years. Partially dependent on Egyptian gas to meet its domestic demands, Jordan experienced shortages beginning just after the collapse of the government of Hosni Mubarak. With government forces focused elsewhere, militant attacks increased in the country’s eastern Sinai Peninsula, including nearly 20 on eastbound gas pipelines.

In addition to losing out on gas revenue, Egypt has also been coping with widespread energy shortages thanks to stalled domestic production and a daunting $6 billion energy sector debt to foreign firms. The group that inked the Jordanian deal could soon provide them with some relief in the coming months if an agreement can be reached to deliver up to eight billion cubic meters of gas a year to Egypt from the Leviathan field. Reversing Israel’s one-time dependence on Egypt for almost a third of its own gas needs, the agreement would ship gas to an LNG plant run by the BG Group, utilizing either a subsea pipeline or one through the troubled Sinai region.

The proposed agreement comes just as another one of Egypt’s energy development options hit a snag. This week, talks concerning a floating LNG facility collapsed when the company that had won the initial contract – Norway’s Hoegh LNG – walked away from the commercial terms proposed by Egypt’s state-run gas company, EGAS. However, the possible export agreement with Israel does not necessarily mean quick relief for Cairo. According to a Wall Street Journal report, Egypt remains an investment gamble and any possible deal would likely have to wait until after the country’s next presidential election later this year.

Israel recently established an export scheme that would set aside 40 percent of the country’s natural gas output for export purposes. Large-scale efforts to reach Europe and possibly beyond provide enormous potential for new revenue, worth billions in the long term, but require substantial initial investments in infrastructure. Possible options for moving gas westward include a Liquified Natural Gas plant on the island of Cyprus, which comes with a $10 billion price tag, and a subsea pipeline through Turkey. The latter proposal also comes at a significant cost, but also requires significant diplomatic progress between Turkey, Israel and the Republic of Cyprus, which has emerged as Tel Aviv’s most active energy partner in the region.

http://www.forbes.com/sites/christophercoats/2014/02/20/israel-laying-down-local-export-options-for-billions-in-gas/?ss=business%3Aenergy