Report

Israel’s Leviathan Captures Another Gas Deal

Israel’s Leviathan Captures Another Gas Deal

Israel has found another nearby customer for its abundant offshore supply of natural gas, a sign that the region’s endless turmoil has not derailed energy development, even if Israel’s newfound riches have yet to prove the geopolitical balm many expected.

The energy firms operating the giant Leviathan field off the coast of Israel said Wednesday that they had reached a preliminary 15-year deal to pipe natural gas to Jordan’s electricity company. The nonbinding letter of intent comes on the heels of two similar deals to sell Israeli gas to Egypt, for use in that country’s liquefied natural gas, or LNG, export terminals. The Jordanian sale still requires regulatory approval in both countries, as well as final agreement on pricing, and is expected to close by the end of the year. It could be worth $15 billion.

For Israel, it enhances the viability of the Leviathan project, key to the country’s energy security, by providing an additional customer without the need to invest billions of dollars in a gas liquefaction plant to ship the fuel halfway around the world to Asia. The Jordanian deal would entail piping total of 1.6 trillion cubic feet of gas over 15 years; the Leviathan field holds about 22 trillion cubic feet of gas. Noble Energy, a U.S. firm that is the lead operator of Leviathan, said it now has preliminary agreements representing about 60 percent of the field’s initial capacity.

For Jordan, the deal could be even more important. Leaders of Gulf states worry that the Islamic State’s rampage through Iraq and Syria could spill into neighboring Jordan. Regional allies are pouring money into Amman to bolster the kingdom’s chances of fending off the Sunni militants and keep its economy afloat. By providing a ready source of fuel for the power sector, the gas deal with Israel could help shore up energy-poor Jordan’s economy and, by extension, its political stability.

"Israel is doing the United States a favor by using some of its gas for regional integration — economic integration, certainly, and perhaps political integration," said Simon Henderson, director of the Gulf and Energy Policy Program at the Washington Institute for Near East Policy. "Jordan is short of energy and Israel is commercially the logical partner."

The State Department helped broker negotiations, according to Noble Energy. Senior U.S. officials on hand for Wednesday’s announcement said the deal could further cooperation in the eastern Mediterranean.

Israel’s emergence as an energy supplier for neighboring countries marks a sharp turnaround in just the last few years. Until 2012, Israel and Jordan both imported natural gas via pipeline from Egypt. But that export route was hammered by terrorists, undermined by falling Egyptian gas production, and closed during the brief rule of Mohammed Morsi, Egypt’s anti-Israel former president.

Now Israel looks like a white knight to both countries. Israeli exports should supply feedstock for Egypt’s LNG facilities, which have been all but shut down because of the drop in Egyptian gas production. For Jordan, the lack of energy resources pushed it to flirt with a host of desperate alternatives, including building expensive nuclear reactors; commercially priced natural gas would provide a way to supply electricity for years to come.

Preliminary deals are just that, however. And technical hurdles exist as well.

Commercial accords with Israel are still controversial with large chunks of the population in Arab states. Operators must build a pipeline from the offshore field that can carry the gas across the border to Jordan. And many customers in Jordan avoid paying their power bills, so Jordan’s National Electric Power Company will likely have to overhaul its power distribution system to ensure that it can recoup the costs of purchasing Israeli gas at market rates, Henderson said.

And the Egyptian and Jordanian deals also underscore the limits of what Israeli energy can achieve. Egypt and Jordan, not coincidentally, are the two Arab states that have peace agreements with Israel; other would-be regional buyers, notably Turkey, have so far rejected any energy deals with Israel. Last month, the Turkish energy minister slammed the door on energy cooperation with Israel as long as the Gaza conflict remains unresolved.

Further afield, European energy officials have eyed Israel’s newfound gas resources as a hedge against disruptions in supply from Russia, still embroiled in a battle with Europe and the United States over Ukraine. This summer, the European Union announced the creation of the Euro-Mediterranean Platform on Gas to jumpstart energy cooperation between Europe and potential suppliers in the Mediterranean. But with natural gas fetching significantly higher prices in Asia than in Europe, it is doubtful large volumes of Israeli gas would head north out of Egyptian LNG terminals.