Success of Israel’s New Natural Gas Deals Hinges on Fluctuating Regional Conditions
JNS.org – In early 2014, the partners controlling the Tamar and Leviathan natural gas fields off the northern coast of Israel have signed supply contracts with Jordan and the Palestinian Authority, establishing the Jewish state as a formidable regional energy supplier in the Middle East.
The deals, and the degrees to which they can be successfully implemented, highlight a growing number of continuously fluctuating regional developments that affect Israel’s geopolitical position.
A $500 million supply contract was signed in mid-February to provide 66 billion cubic feet of natural gas to two Jordanian entities, the Arab Potash Company and the Jordan Bromine Company, from Tamar. In January, a $1.2 million supply contract was signed to provide energy to the Palestinian Authority.
Jordan, like Israel, has become desperate for sources of energy as Egypt ceased to be able to provide consistent flow of Natural Gas to its neighbors.
“Providing natural gas to Jordan can be looked at in a strategic context for Israel,” Delphi Global Analysis founder David Wurmser—who consults for one of the major energy firms invested in the Leviathan basin, home of the Leviathian field—told JNS.org. “Jordan serves as an important first line of defense for Israel against more radical eastern forces.”
Wurmser, a former Mideast adviser to Vice President Dick Cheney, explained that by supplying Jordan with its energy needs, Israel “can help ensure that Jordan keeps its interests aligned westward, as opposed to eastward.”
“If Jordan does not get its energy supply from Israel, it could instead turn its sights toward Russia, which has recently demonstrated growing interest in increasing its role as a power player in the region,” he said.
Relative to countries further away from Israel, building the infrastructure necessary to export gas to Jordan is inexpensive. And as natural gas from Tamar is already flowing, delivery is expected to begin in 2016. Israel itself cannot take the full amount of gas Tamar can provide, because a second point of entry has been blocked.
“Environmentalists and other protestors have held up the completion of such infrastructure for a year already,” Wurmser said.
To deliver natural gas to Jordan, Israel could potentially reverse the direction of the Egyptian-Israel pipeline without building new infrastructure, and then send the gas from Egypt to Jordan. But this less expensive model likely would not prove reliable, given the instability in the Sinai Peninsula since the start of the “Arab Spring” revolutions.
“The Egyptian-Israel pipeline has developed a habit of blowing itself up,” Wurmser said.
Instead, Israel is expected to develop infrastructure to send natural gas being delivered to Israel’s Dead Sea works, across the sea to Jordan’s facilities.
“The execution of this agreement evidences the growing regional opportunities for our natural gas and brings forward value for the Tamar asset,” said Keith Elliott—Senior Vice President, Eastern Mediterranean for Houston-based Noble Energy, operator of the Tamar field—in statement. “We have now signed the first regional export agreements for both Tamar and Leviathan, and we are in a number of additional negotiations to sell significant quantities of natural gas from both fields to multiple customers.”
The contract signed with the Palestinian Authority, meanwhile, may prove more difficult to implement in the long run.
Palestinian energy needs are currently provided by Israel through its electricity grid. Yet the Palestinian Authority has consistently failed to pay for electricity consumption, and has racked up tremendous debts to the Israel Electric Company (IEC). In a somewhat ironic move, the PA is seeking to be able to produce its own electricity and cease reliance on the IEC by purchasing Israeli gas.
“The deal may simply represent a shifting of energy debts from the Israel Electric Company to Israeli natural gas,” Wurmser told JNS.org.
Natural gas delivery to the PA will not begin until the Leviathan field’s reserves begin to be pumped to Israel, a process that is currently not moving as fast as once anticipated due to tremendous infrastructure costs. Israel recently signed a memorandum of understanding with Woodside Energy, a large Australian-based energy player, to assist with some of the infrastructure costs and to open additional export opportunities, yet Israeli partners would still be liable to pay several billion dollars for their share of the infrastructure investment.
If the deal with Woodside Energy stalls, Leviathan’s partners may have no choice but to turn to Gazprom, Russia’s major natural gas conglomerate. Such a move, while providing additional capital for the development of Leviathan infrastructure, may again strengthen Russia’s hold in the Middle East.
In February, Egypt signed an arms agreement with Russia—representing a major shift in regional alignments. Between the signing of the Israeli-Egyptian Peace Accords in 1979 and the fall of Egyptian President Hosni Mubarak in 2011, Egypt had distanced itself from Russia, aligning instead as a staunch ally of the United States.
Yet with U.S. foreign policy in the Middle East in disarray, once reliable U.S. allies are now looking for new power backers, and the Russians are taking advantage.
“Recently, Jordan began developing nuclear energy, and turned to Russia for assistance,” Wurmser said.
“If the United States will not be attentive to the needs of its longtime allies in the region, they should not be surprised when those allies look for backing elsewhere. … U.S. policy in the region over the past several years has been anything but reliable,” he said.