Israel has $500M gas deal with Jordan, but wider exports still unclear

Feb. 20, 2014 at 2:02 PM
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TEL AVIV, Israel, Feb. 20 (UPI) -- Israel has signed its first gas export deal, selling gas worth $500 million to Arab peace partner Jordan, but debate is still unresolved on whether the Jewish state will export the bulk of its gas via undersea pipeline or by tanker as liquefied natural gas.

The gas that will go to Jordan, Israel's eastern neighbor, from the Tamar field in the eastern Mediterranean under the 15-year contract signed Wednesday will be pumped via pipeline to two of the Hashemite kingdom's chemical companies, Arab Potash and its subsidiary Jordan Bromine, at their facilities on the Dead Sea.

Stakeholders in the Tamar field, headed by Noble Energy of Houston, Tex., and its Israeli partners Delek Group and Avner Oil & Gas, signed a 20-year gas supply deal with the Palestinian Authority in January for a planned power station in the West Bank.

Technically, the deal to supply 66 billion cubic feet of gas to Jordan, starting in 2016, marks Israel's first exports.

Israel's Channel 2 television reported the Jordanian deal could be expanded into a $30 billion partnership, under which the Jewish state, on the verge of becoming the key energy power in the eastern Mediterranean, would be Jordan's main supplier of gas.

The resource-poor kingdom, which signed a peace treaty with Israel in 1994, turned to its former foe after its supply of gas from Egypt was cut off by terrorist attacks on the pipeline from the Nile Delta.

Channel 2 said a key broker of the Jordanian deal was U.S. deputy assistant Secretary of State for energy diplomacy, Amos J. Hochstein.

"This deal will pave the way for additional export projects which could enhance regional cooperation," said Noble Vice President for the Eastern Mediterranean Lawson Freeman.

Israel sits on natural gas reserves estimated at 25 trillion-30 trillion cubic feet, largely in the Tamar field, with 8.5 tcf, and the larger Leviathan field, with as much as 18 tcf. Total reserves are expected to grow over the next few years as new fields are found.

Tamar began production March 30, 2013, and has been signed up for a several major domestic contracts.

Leviathan, which lies in deeper water 80 miles west of Haifa, is expected to go onstream in 2016 and to provide the bulk of the gas earmarked for export.

The Israeli government decided in June 2013 to allocate 40 percent of its gas production for export but no decision has been made concerning how that gas will be exported, with Europe and Asia the primary targets.

One option is an undersea pipeline to the island of Cyprus, which is currently exploring its own waters, which -- initial results indicate -- contain at least 7 tcf , for joint export to Europe, desperate to break its dependency on gas supplies from an erratic Russia.

That would involve construction of a $10 billion liquefied natural gas plant, possibly a floating facility off southern Cyprus, from where special tankers would carry the gas to terminals in Europe and Asia, where LNG fetches prices that are double those on the European market.

The other option is a pipeline snaking northeast across the Mediterranean seabed to Turkey, which seeks to transform itself into the key energy hub between the Middle East, Russia, Central Asia and Europe.

The snag there is that Israel and Turkey, once strategic allies, are now at odds and it will take a major diplomatic feat to secure agreement on gas supplies from the Jewish state and Cyprus, another diplomatic knot since Turkey has occupied the northern one third of the Greek majority island since a 1974 invasion.

Energy insiders believe the economic benefits will persuade Ankara to set differences aside and make a deal on the eastern Mediterranean gas.

Australia's Woodside Petroleum signed a deal with Noble Energy and Delek this month to buy a 25 percent stake in Leviathan for some $2.25 billion, with Noble Energy holding 30 percent and the Israeli partners a combined 33.86 percent.

The Woodside deal is a possible pointer to what export option Israel will go for because the company specializes in LNG in Australia, a major gas exporter.

A final agreement is expected to be concluded by the end of March.

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