Israel Set to Emerge as Major LNG Exporter

One of the most pressing issues for Prime Minister Benjamin Netanyahu's new government has been its policy toward Israel's vast offshore natural gas reserves. Specifically, how much of the gas should Israel keep for domestic use and how much should it export?

Last week, government officials led by Netanyahu finally announced the details of that decision. They recommend that Israel keep 60% of the nation's gas for domestic consumption, which, government officials reckon, should be enough to meet domestic gas demand for at least the next 25 years.

The remaining 40% should be made available for export, which the government estimates should bring in profits of some $60 billion over the next 20 years. The recommendation has been submitted to Netanyahu's cabinet, where it is currently under review for approval.

Implications for energy companies
The decision had been long awaited by companies investing in Israel's natural gas sector, especially U.S.-based Noble Energy and Israel-based Delek Drilling, the two largest stakeholders in Israel's offshore gas reserves.

The two companies had been seeking clarity on the government's stance regarding gas exports, as they aim to exploit the Tamar and Leviathan gas fields, which have been hailed as parts of one of the biggest offshore natural gas discoveries of the past decade.

Israel's massive offshore gas reserves
In March, Noble and Delek started pumping gas from the Tamar field, marking the first production from Israel's offshore gas reserves. Prime Minister Netanyahu hailed the development as "an important step toward energy independence" for Israel.

Tamar, which was discovered in 2009, is the biggest privately financed infrastructure project in the nation's history, costing $3 billion and four years to develop. Production from the field is expected to add a percentage point to the country's GDP growth this year, which is forecast to reach 3.8%.

While that's already impressive, the undeveloped Leviathan field, the larger of the two finds, holds even more promise. Leviathan's operators recently raised their estimates of the quantity of natural gas that can be recovered from the field by about 11%.

Delek, Avner Oil and Gas, and Ratio Oil Exploration said last month that the field, which is located in water depths of about 5,400 feet offshore Israel in the Rachel and Amit license, likely contains some 19 trillion cubic feet (tcf) of natural gas, 2 million tcf more than previously believed.

Export options
Delek and Noble Energy are currently mulling over plans to export the gas from Tamar and Leviathan via pipeline to Jordan, Turkey, the Israeli-occupied West Bank, and potentially even Egypt. Delek is also currently in talks with Cyprus about developing an LNG terminal on the island nation that would serve markets in Europe and Asia.

Cyprus, which discovered nearly 200 billion cubic meters of gas in its Aphrodite field, hopes to start exporting LNG in 2020 and plans on processing not only its own gas, but also supplies from Israel and possibly Lebanon.

The bottom line
With these major discoveries in Israel and Cyprus, the Mediterranean and Middle Eastern gas trade is likely to undergo a fundamental transformation over the next several years, as countries like Israel emerge as major LNG exporters, possibly joining the ranks of existing heavyweights such as Qatar.

Furthermore, as Israel's decision highlights, countries around the world that are blessed with vast reserves of natural gas are recognizing the potential of exporting their resources. But in making their decisions, they must weigh the benefits of keeping the gas for their own domestic consumption against the profits that gas exports could generate for their government and citizens.

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