A Look Ahead: the Evolving Eastern Mediterranean Natural Gas Industry

Natural Gas Europe was pleased to interview Gina Cohen to discuss the situation as it evolves in the Eastern Mediterranean natural gas sector and the potential export routes.

“One should exploit its own resources and also trade them in order to make the best out of them for the long-term”

How has energy cooperation evolved between Israel and Cyprus both at a corporate and inter-state level?  What are the challenges ahead?

Having both countries discovering significant amounts of gas is certainly an amazing development and advantage for them. Natural gas is an ideal energy commodity that has distinct advantages compared to coal and nuclear energy which is certainly not appreciated especially after the Fukushima accident.  Gas is the best thing possible for power generation in our age.

Having said that, the discoveries by Israel should be coupled with cooperation between neighbors since quantities are large but not enough to do it on our own.

I estimate that Cyprus should look into exporting all of its gas to world markets, based upon the fact that it is a small country – there are economies of scale in place in that aspect because the more you export the more you decrease your costs and increase supply to the markets, thus the more potential buyers you have in order to make your project a success.   

The Asian markets in particular will appreciate such move, since they are also the largest buyers in the future as demand grows there, whereas in Europe its stabilized.

Israel and Cyprus should cooperate. Nevertheless, on one hand Cyprus wants to export to the EU in order to have the backing of Brussels but prices in Europe are much lower than in Asia and on the other hand Israel is very much security conscious and would like to have an export installation in its land

There is room for discussion amongst the two countries how they will accommodate their future partnership.

The Tamar and Leviathan discoveries are estimated to be quite large.  Are quantities sufficient enough to secure the long-term energy security of Isarel and satisfy its export strategy?

There are around 920 bcm out of which the government would like 400 bcm to be used in the future for the needs of the local market. I believe that an open market is preferable and we should and could export more.

The quantities are sufficient and there are further discoveries and other sectors offshore to be explored such as one off the coast of Gaza around 35 miles from Israel. By taking into account all of this, the domestic needs can be safeguarded for around 35-40 years ahead and be able also to supply either the Asian markets or to have an export route towards Jordan and the Palestinian side which require rather small amounts of gas for their needs. One should exploit its own resources and also trade them in order to make the best out of them for the long-term.

Continuing from the previous question, what is your estimation regarding the likely export route of Israeli gas - would that be an LNG platform towards European and international markets or towards the Middle East and in countries such as Jordan?

There a few options available, which are the pipeline routes and the LNG terminal.  

There is already a pipeline from Egypt to Israel which can have a reversed flow with an investment not exceeding $150 million. Another pipeline route is the one towards Turkey, although that is a complicated story because under the maritime Law of 1982 the Cypriot and Lebanese Exclusive Economic Zones are to be crossed and that implies that these countries should also permit upon that, which I find extremely difficult to happen. Moreover having a pipeline to Turkey makes Israel dependent and that is a disadvantage.

Another route could be a pipeline to Greece, but then again costs associated are great, due to the distance and the sea depth.  Simply a pipeline to the EU seems far-fetched at the moment.

In my view a pipeline which already exists and operates for years such as the Egyptian-Israeli one, I have already mentioned and additional small pipelines to Jordan through the Dead Sea are can be achieved with little cost and in a small period.

Regarding the LNG infrastructure there two versions available for planning. One is to construct one in the Mediterranean shores, close to the offshore fields, which has the advantage of being more economical in terms of transportation from production to exporting. Another alternative is to have it close to the Eilat area in the South of the country in the Red Sea. Although it will be initially costlier since gas will need to be travelled through an additional pipeline, it has the advantage of being after the Suez Channel, thus much closer and cheaper on its way for the growing markets in East Asia. Also the Eilat region has necessary capacity to host such project.

Lastly the option of a joint LNG project with Cyprus is available where a suitable location has been already found. In such case Israel hesitates to abandon control due the security concerns I mentioned earlier. In overall LNG plans have another disadvantage and that is the investment one should make not only in the initial construction but also in the hiring and training of  significant manpower, as long as, the installation is operating.

Would your company be interested in forming joint ventures for oil and gas explorations with Greek companies, including schemes for pipeline projects (i.e. East. Med. pipeline) or LNG terminals to supply the Balkan markets as well?

Most certainly I am sure the Israelis are very keen to expand cooperation, to gain and give knowledge and invest. There is a lot of activity in that field, in a preliminary level, since attention is concentrated in drafting a conclusive plan for the newly founded gas of our own, as it was mentioned in our discussion. Most energy companies in Israel have made plans though for regional expansion and already 5-6 of those are interested for Cyprus especially, while others are looking into Greece as well, where there may be potential natural gas reserves of importance reserves off the coast of Southern Crete for example. The Israelis know the locale and want really to cooperate with their neighbors. 

Gina Cohen is Consultant to the natural gas industry in Israel and she has been involved in projects spanning the full gas chain: from exploration and development; to involvement in the enactment of the country’s Gas related laws from the first Gas Law in 2002 and up to the Petroleum Profit Taxation Law in 2011; to GSPA negotiations (both as buyer & seller); to regulatory and permitting aspects for the establishment of the natural gas facilities either onshore or offshore; to projects relating to the establishment of natural gas generated power station and other issues.

Gina Cohen lectures at the Technion University’s Graduate program for Petroleum Engineers and is the author of the Hebrew-English energy lexicon (www.hebrewenergy.com)