More than just an economic windfall, the Leviathan field could herald energy independence and improved foreign relations for Israel – but amid uncertain access to international markets and stakeholder opposition, these may remain a pipe dream.
- In September Noble Energy and its partners in Israel’s Leviathan field signed a sales and purchase agreement with Jordan’s National Electric Power Company (NEPCO) to supply 1.6 trillion cubic feet of natural gas valued at $10 billion over a 15-year term. Though the deal has the publicly-expressed support of the Jordanian government, its announcement sparked street protests in Amman by groups alleging that bilateral business relations with Israel indirectly strengthen its occupation of the Palestinian Territories. Several newly elected legislators have threatened to resign in opposition to the agreement when Jordan’s parliament reconvenes in November.
- Leviathan, one of the largest natural gas discoveries of the last decade, was discovered by Noble in Israel’s offshore exclusive economic zone in the eastern Mediterranean in 2010. After eighteen months of political, legal and regulatory wrangling, the Israeli government approved a revised gas regulatory framework in May 2016, clearing the path for the field’s development. With up to 50% of future Leviathan production earmarked for export, the Noble-led consortium is currently seeking to attract customers in foreign markets to underpin the cost of developing the field. A final investment decision is expected as soon as late 2016/early 2017, with the aim of producing first gas as soon as late 2019/early 2020.
- The development of the Leviathan field – described by a former Israeli infrastructure minister as “the most important energy news since the founding of the state” – is strongly supported by Prime Minister Benjamin Netanyahu for economic and national security reasons. Supplemented by other discoveries in the eastern Mediterranean, the field contains enough gas to guarantee Israel’s energy independence for the next hundred years at the very least. Meanwhile, in addition to being a welcome prospective source of royalties and tax revenue, exports from the field are also viewed as an important foreign policy instrument to improve relations with the Palestinian Authority and neighbouring states.
- Domestic opposition in Israel has nonetheless been fierce, resulting in multiple delays that risked torpedoing the project. Critics’ main objection to the government’s gas regulatory framework was that it created a de facto gas duopoly that will hurt Israeli consumers with artificially high prices because Noble and its main partner Delek also control Tamar, Israel’s second biggest field. Amid political opposition and street protests against what demonstrators called “the great gas robbery”, the national regulator recommended in late 2014 that the Noble-Delek partnership should be broken up to ensure adequate competition, causing Noble to freeze investment in Leviathan for several months until the regulatory climate improved. Following the resignation of the antitrust commissioner in protest against the emerging revised framework, Leviathan hit another snag when the Israeli Supreme Court struck down the ‘stability clause’ binding the state to the terms of the agreement for the next decade. In May 2016 the government finally approved an updated version of the agreement after the terms were moderated. There have been no further political or legal challenges to the revised framework.
- Though the government’s approval of the deal in May 2016 represents an important turning point in Leviathan’s fortunes, the project is not out of the woods yet from a domestic standpoint. Many in Israel believe the current agreement is unduly generous to Noble and its partners. Although the revised framework provides for future stability assurance, there is no guarantee that a future centre-left government led by the Zionist Union would leave the terms of the agreement untouched. Furthermore, according to some analysts, trade unions may oppose a further shift to reliance on natural gas in the hope of protecting jobs at coal-fired power stations.
- The socio-political environment facing Noble at the international level is no less fraught. The Houston-based company requires a baseload customer market abroad to support the economics of developing the field, but it is not presently clear who these customers will be. According to analysts, even assuming the deal is not undone by domestic opponents, the Jordanian market on its own is unlikely to be big enough to make Leviathan’s development commercially viable. The company however states that contracts in Israel and the sales agreement with Jordan’s NEPCO underpin the volumes supporting a final investment decision and that it continues to work on additional sales and purchase agreements.
- Various options for supplying the gas to markets further afield have been suggested, each of which is politically challenging. Israel’s recent diplomatic rapprochement with Turkey has raised hopes that a pipeline linking Leviathan to Turkey could be constructed to enable access to the European market. However, while UN-brokered negotiations on unification have ramped up in recent months, Cyprus is unlikely to consent to gas crossing its territorial waters before a political solution is reached. Alternatively, Leviathan’s gas could travel via pipeline to Egypt’s underused LNG plants at Damietta and Idku for re-export elsewhere. Noble notes that Egypt remains an undersupplied market for gas, and Egyptian government officials have signalled continued demand for Israeli gas. This option, however, could encounter resistance from Egyptian civil society where anti-Israel sentiment runs high. Additionally, though gas transported via pipeline to the region and Europe could have proximity and cost advantages over LNG projected to come on stream from Canada, Mozambique and elsewhere, Leviathan might be priced out of an already crowded market by its planned production date of 2019/2020.
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