Can Israel Export Natural Gas via LNG Ships?
Israel's announced LNG project will require the construction of specialised LNG tankers worth billions of dollars, of which six are currently in operation around the world. Shipyards in South Korea and Singapore specialise in this field. In parallel, production from the Leviathan field is planned to be expanded to include an additional pipeline from the field seventy-five miles offshore to the production platform about five miles offshore from Zichron Yaakov, south of Haifa.
This option, which will take several years to develop, would reduce or even eliminate the need for Israel to export gas via Egypt.
The war in Ukraine has changed the international natural gas market, increasing both prices and demand in Europe. In order to be economical to compress natural gas and transfer it by ship, it must be transported over much longer distances than can be reached by pipeline. For this reason, Chevron and other companies exploiting Israel's largest offshore field, Leviathan, have assessed the feasibility of producing liquefied natural gas (LNG) and have decided to proceed with the next step of basic engineering.
Apart from relatively small quantities piped to neighbouring Jordan, the only current export market for Israel's offshore gas is Egypt. Egypt exports its own gas at more favourable prices and uses it to generate electricity (1).
The Chevron consortium that operates Leviathan and the two Israeli companies (NewMed Energy and Ratio Energies) that actually own most of the licences appear to have been motivated by commercial considerations. Especially since such export options involve long-term commitments, the companies' dependence on a single main export route (Egypt) carries commercial risks. LNG exports are attractive since LNG tankers are not restricted by country borders and can go anywhere in the world.
Israel's announced LNG project will require the construction of specialised LNG tankers worth billions of dollars, of which there are currently six operating around the world. Shipyards in South Korea and Singapore specialise in this field. In parallel, production from the Leviathan field is planned to be expanded to include an additional pipeline from the field seventy-five miles offshore to the production platform about five miles offshore from Zichron Yaakov, south of Haifa. (The small and unexploited Aphrodite field shared by Cyprus and Israel could also be connected to this field.) The LNG carrier will be moored close to the platform and LNG tankers will be docked there for loading (1).
Egypt Idku LNG Plant
The Leviathan consortium is pressurising Egypt to change the terms of its existing agreements, which provide low revenues. The companies also want Egypt to agree to a deal under which Leviathan gas would be liquefied for a fee at the Shell-operated Idku LNG facility in the Nile Delta and exported to the international market at a much lower price than in Egypt (1).
Capacity increase planned at Leviathan
In 2021, partners in the Leviathan gas field in the Eastern Mediterranean had approved spending around $100 million on preparations for expansion, including a floating liquefied natural gas (LNG) terminal off the coast of Israel.
The Leviathan field became operational at the end of 2019 and produces 12 billion cubic metres of gas per year for sale to Israel, Egypt and Jordan. Earlier this year, NewMed Energy said in a statement that the Levithan partners had approved the 2023 budgets for Phase 1B of the development of the Leviathan reservoir, with the aim of increasing the total gas production capacity by a further 9 billion cubic metres per year to approximately 21 billion m3 per year(2).
In another statement, NewMed Energy (NWMDp.TA), which is partnered with Ratio and Chevron (CVX.N) in Leviathan, announced that the group will spend $45 million to plan the first production expansion and another $51.5 million for the preparations of the floating LNG terminal, and NewMed stated that the floating facility is expected to have an annual capacity of approximately 6.5 billion m3 of LNG.
Also in 2020, Israel, Egypt and the European Union signed a memorandum of understanding to send Israeli gas to Europe via LNG facilities in Egypt.
LNG Tankers are a faster and more practical way
A factor in Israel's decision to examine the LNG option more closely may have been the October 2022 US-brokered agreement on the maritime border between Israel and Lebanon, which was accepted by Lebanon's Iranian-backed Hezbollah.
However, the threat of Hezbollah rockets has not disappeared. It has therefore been announced that an Israeli anti-missile naval unit will be deployed in an area close to the Leviathan platform.
Eastern Mediterranean gas pipeline route
As we have stated many times before, both the gas to be transported by the East-Med gas pipeline and the gas from the 9 billion m3 per year Israeli LNG tanker project will remain a very small amount in the EU's total demand of 400 billion cubic metres per year. Moreover, the East -Med submarine pipeline project was set aside by Washington at the beginning of last year on cost and practicality grounds. On the other hand, it is known that the current production in Israel's gas fields and the planned increase in production capacity are not sufficient for the demands of the neighbouring countries and the EU.
On 21-23 December 2022, the Near East University held a conference titled "Cyprus Problem: Environmental Challenges and Energy Security" international conference organised by the Near East University on 21-23 December 2022, Israeli energy expert and CEO of Eco Energy Dr Amit Mor said that they will soon start selling gas to Lebanon, but they will not be able to sell gas to Turkey. Dr Mor explained the reason for this as Israel not having enough gas (3).
Now, the engineering and commercial difficulties of the alternative of transporting natural gas by LNG ships on Israel's agenda will probably be compounded by diplomatic pressures from Greece, Cyprus and perhaps the European Union. However, Israel will also take into account the increase of regasification units built in the ports of EU countries, especially in Germany, after the Ukraine crisis. In this case, the progress of Israel's gas export project with LNG tankers will emerge as a faster and more practical way and will gain support.
References
[1] Simon Henderson 2023 "Israel Planning to Export Gas via LNG Ship" Access: https://www.washingtoninstitute.org/policy-analysis/israel-planning-export-gas-lng-ship Feb 22, 2023
[2] Leviathan group starts plans for Israeli floating LNG terminal https://www.reuters.com/markets/commodities/leviathan-group-starts-plans-israeli-floating-lng-terminal-2023-02-21/
[3] Near East University Cyprus Problem: Environmental Challenges and Energy Security" Conference Access;https://neu.edu.tr/yakin-dogu-universitesi-ev-sahipliginde-dunyadan-40-universitenin-destegi-ile-duzenlenen-kibris-sorunu-cevresel-zorluklar-ve-enerji-guvenligi-konferansinda-200e-yakin-katil/
