Israel begins its energy independence as natural gas flows from Tamar field to Ashdod

Tamar natural gas rig

This news is too good to hold on to for a whole week until my next Good News Friday post.  Israel’s Tamar offshore natural gas field began pumping its gas to Ashdod’s intake center, four years after its discovery:

The moment everyone has been waiting for has arrived: After more than four years of drilling and pipe laying, the flow of natural gas from the Tamar gas field, located some 90 km (roughly 56 miles) west of Haifa, has begun.

The gas is travelling in pipes hundreds of kilometers south into the Yam Tatis gas field and from there will continue to an intake center in Ashdod, where it is expected to arrive in about 30 hours.

This marks a major turning point both for Israel’s economy and society and will provide the state with energy independence at least until 2035.

Prime Minister Benjamin Netanyahu said, “This is an important day for Israel’s economy. On the holiday of freedom we are making an important step towards independence in the field of energy.”

He further added, “In the past decade we have pushed the gas industry forward and this will benefit Israel’s economy as well as Israel’s citizens.”

Upon its arrival to Israel, the gas will support the generation of electricity at power stations – owned both by the Israel Electric Corporation (IEC) and private companies, as well as smaller factories – gradually allowing for prices to drop as Israel’s electricity shifts from expensive, polluting and import-dependant materials, such as diesel and fuel oil, to its own natural gas.

The transition will also increase Israel’s competitive edge in comparison to foreign industries and increase state revenue as royalties for the gas begin to roll in.

The search for natural gas at the Tamar field, which is named after the granddaughter of Joseph Langotsky, the senior geologist who first recognized its potential, began in 2010. The search was led by  Israeli entrepreneurs and British Gas, which disbanded after a number of years.

In 2007, the search was renewed under the management of a new partnership – the American company Nobel Energy holding a 36% stake in the field, and the three Israeli partners – Delek Drilling (31%), Isramco (29%) and Dor Alon (4%).

After two years of expensive and exhaustive oil explorations, in 2009 the news broke that gas, and a lot of it, had been found.

Underwater drilling – which reached depths of almost 5,000 meters (roughly 3.1 miles) below sea level – revealed evidence hinting at the existence of large quantities of natural gas.

It is currently estimated that there are 270 billion cubic meters of natural gas at the Tamar field.

The geopolitical and economic ramifications are of utmost importance, as the Ynet article continues:

The primary and immediate benefit of Tamar’s natural gas is a drastic reduction in electricity generation costs.

In 2005, when gas from reservoirs in the Sinai Peninsula began reaching Israel, the IEC began generating more and more electricity from natural gas. Until 2011, 40% of electricity consumed in Israel was generated by natural gas costing $5.5 per unit of energy.

However, in 2011 the gas flow from Egypt was abruptly halted, after a number of explosions damaged the Sinai pipeline to Israel. Later, in wake of the Egyptian revolution, Cairo canceled its contract with the Israeli government. [As I posted here -Ed.]

The same year also saw the Yam Tatis gas field, located west of Ashdod, depleted. Thus, for more than a year, Israel was forced to work on very small amounts of natural gas.

The result: A 24% increase in electricity rates. Faced with a shortage of natural gas, the IEC was forced to return to diesel-based electricity, which costs about $26 per energy unit, more than four times than natural gas.

[…]

The profits from gas sales are expected to reach the much anticipated 200% in 2023. Until then, the state will not exact a toll on their profits via tax but only through a 12.5% royalty payment on the gas sales themselves.

Hence, for now, Tamar is not expected to make the state richer, forcing it to wait until the much larger  Leviathan gas field (450 million squared meters) is ready.

Most importantly, Tamar’s gas pumping brings Israel new found energy independence, which is expected to hold until 2035. Israeli electricity will no longer be dependent on raw materials imported from other nations, and will cost much much less.

Energy and Water Minister, Silvan Shalom, said in response: “This is Israel’s energy independence day. It is truly a historic event – Israel has received energetic freedom, and gas from Tamar will lead to a drastic decrease in the IEC’s production costs, hence a future reduction in electricity costs for the average Israeli consumer.”

This being the Middle East of course, all is not expected to be plain sailing as Israel faces a geopolitical tangle over its natural gas:

Recent discoveries of massive offshore natural gas deposits, set to begin flowing in the coming days, are turning into a mixed blessing for Israel.

The deposits are expected to provide Israel enough natural gas for decades and transform the country, famously empty of natural resources, into an energy exporter. Yet selling this gas overseas will require Israel to navigate a geopolitical quagmire that risks angering allies and enemies alike. Amid this uncertainty, Israel still has not formulated an export policy.

“Instead of being an ingredient which serves to calm the tensions of the eastern Mediterranean, (the discoveries) provide instead another impetus for rivalry,” said Simon Henderson, a fellow at the Washington Institute for Near East Policy. “There is a reason this is often called diplomatically trapped gas.”

Israel discovered two large fields, Tamar and the heftier Leviathan, in 2009 and 2010. Tamar, which holds an estimated 8.5 trillion cubic feet, is set to begin pumping to the Israeli market in the coming days, while Leviathan, which boasts an estimated 16 to 18 trillion cubic feet of gas, is expected to go online in 2016, the approximate time when exports are expected to begin.

The discoveries are just a portion of the huge reserves in the Levant Basin, which the United States Geological Survey estimated in 2010 holds some 122 trillion cubic feet of recoverable natural gas.

While Israel’s finds are minimal compared to gas giants Russia, Iran or Qatar, they are more than enough for the country’s domestic needs and would enable the country to reduce its reliance on costlier and dirtier oil and coal. Nearby Cyprus has also become newly resource-rich, and Israel’s other neighbors, including enemies, may discover their own deposits.

In all, Israel has just the world’s 46th largest supply of proven natural gas reserves, according to the CIA Factbook. But the country’s proximity to Middle Eastern and European markets could make it an important regional player. For oil companies hoping to profit from the new wealth, the biggest hurdle remains the lack of an export policy.

“The challenge we face now is … the failure to decide on export,” said Bini Zomer, an official in Israel with Noble Energy, the Texas-based company that has led exploration efforts. “The policymakers seem to lack a sense of urgency.”

The challenges are many. Cooperating with Cyprus risks antagonizing Turkey, an important one-time ally whose relations with Israel have greatly cooled in recent years. The neighboring Arab countries Egypt and Jordan might provide opportunity, albeit with some political risk. Europe is a potentially larger and more stable market, but reaching the continent is a logistical challenge and risks angering Russia.

Israel has already broached volatile turf by opening talks with Cyprus. The two countries, whose territorial waters border each other, are looking into how best to jointly exploit their mineral reserves. One option is to pipe the gas to Cyprus, where it could be processed for export to Europe and beyond.

The gas discoveries have helped to warm historically chilly ties with Cyprus, which has traditionally sided with the Palestinians and has looked on warily as Israel built military and trade relations with rival Turkey.

[…]

The Israel-Turkey rapprochement is on the minds of Cypriot authorities as future gas revenues are seen as the country’s best hope to pull it out of the economic morass that has decimated its banking sector.

“I assure you that we are monitoring the situation and we will act accordingly to protect the country’s sovereign rights,” Cyprus’ Commerce Minister Giorgos Lakkotrypis recently said. He said the country’s president, Nicos Anastasiades, is planning a trip to Israel to discuss energy cooperation matters.

Cyprus has looked to Israel to pool their respective gas finds in order to build a gas processing facility on the island that could be used to supply domestic demand and liquefy it for export.

Experts say the most obvious route to Europe from Israel would be through Cyprus, then to Turkey, but those traditional enmities could block such a solution. Cyprus fears that Israel may instead opt to sign a deal to pipe its excess gas to Turkey directly via a pipeline in order to reach European markets.

Brenda Shaffer, an expert on natural gas at Israel’s Haifa University, noted that the renewed alliance opens the door to cooperation with Turkey, a large market and rising player on the global stage.

“Cyprus can never replace Turkey in terms of geopolitical value for Israel,” she said.

Meanwhile, entering the European market risks placing Israel at odds with Russia, a natural gas juggernaut that supplies much of Europe. Russian energy giant Gazprom has shown interest in working with the consortium drilling off Israel’s coast, which observers say may reflect a desire to ensure a role in the region’s gas projects.

There are more challenges closer to home. The maritime border between enemies Lebanon and Israel is disputed. Although it appears no major gas sits in the contentious area, tensions have flared over the disagreement. The Hezbollah militant group, which battled Israel to a stalemate during a monthlong war in 2006, has threatened to use force to protect what it says is Lebanon’s natural wealth.

Any infrastructure Israel builds is vulnerable to attacks from the myriad militant groups in Egypt, the Gaza Strip and Lebanon. Sending gas to a processing plant in Egypt, one of the many ideas floated, is contingent upon whether the tenuous peace agreement between Israel and Egypt remains intact. Egypt’s own gas exports to Israel have ground to a halt following more than a dozen pipeline attacks by militants in Egypt’s Sinai desert.

But some opportunities are at hand. No longer reliant on Egypt, Israel will have a stable source of energy, along with a chance to strengthen ties with its neighbors by providing clean energy that is cheaper than oil.

An official from Israel’s Energy Ministry said the government has “an interest” in providing energy to Jordan and the Palestinians. He spoke on condition of anonymity because the government has not made any firm decisions.

Jordan, in particular, makes sense for Israel. Jordan signed a peace agreement with Israel in 1994, and new commercial ties would help cement that peace.

Jordan, which has also seen its gas supplies disrupted by the repeated pipeline attacks in Egypt, would also benefit from a stable source of energy. These disruptions from Egypt have forced Jordan to use oil to fuel its electric plants.

A Jordanian government official said Jordan would be interested in Israeli gas “if it’s cheap.” He spoke on condition of anonymity because no decisions have been made.

Israel’s apology last week to Turkey for the Mavi Marmara affair (about which I will blog after Pesach) may now be seen against the background of this natural gas discovery and the wish to build a pipeline to Europe. Certainly the international and geopolitical complications are not going to be easy to untangle for Israel, but even if used only for domestic purposes, this new energy source is invaluable for Israel both economically and politically.

What a great gift for Pesach!

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7 Responses to Israel begins its energy independence as natural gas flows from Tamar field to Ashdod

  1. cba says:

    The primary and immediate benefit of Tamar’s natural gas is a drastic reduction in electricity generation costs.
    Which means our electricity bills are going up by “only” 6% (but that’s certainly better than the 15% that they were predicting).

  2. Brian Goldfarb says:

    “The challenge we face now is … the failure to decide on export,”. Wow, some problem! We should all have such problems.

    cba: okay, your energy bills are going to rise. So are mine, but I see no prospect here in the UK of there being a future income stream for the government leading, one would hope, to better infrastructure and other such projects. So, as the saying goes, count your soon to be blessings.

  3. TerryD says:

    When I read this earlier today my first thought was ‘An energy independent Israel is an Islamist’s worst nightmare!’ Unlike Brian, I can’t see any major global exports at present. The need (preference??) to ship natural gas in liquid form would be blood to a shark as far as the Islamist regimes are concerned. Think VERY Big Boom. Certainly a trickle of your bounty could go to the Palestinians, but only a trickle.

    The very real near term threats come from Cyprus (with an energy starved EU just salivating at the Tamar location) and Muslim Brotherhood controlled Egypt. A longer term threat is Iran/Iraq with their declared intent to destroy Eretz Israel. Again, the Tamar Field location, a newly constituted Iranian blue water navy and such murderous intent militate vry strongly for caution, stockpiling and increased watchfulness. How to prevent those Nation-States from taking over the Tamar fields and production facilities will be a major concern. I have no fear the IDF is up to the challenge

  4. Earl says:

    Terry D makes some good points. Hence, Israel’s recent, unpleasant “apology” to Erdogan. But it’s a necessary condition precedent to assure an ascendent Turkey secures transmission of IL gas.

    Cyprus fears that Israel may instead opt to sign a deal to pipe its excess gas to Turkey directly via a pipeline in order to reach European markets.
    Heh. A statement that is more sound than any Cypriot bank deposit…

    • anneinpt says:

      Yep. That “Apology” is sticking in everyone’s throat here but if it means a safe and secure way to transfer our gas then it was worth it. I hope. But can the Turks be trusted? What’s to guarantee that they won’t renege on their contract just like the Egyptians have done in Sinai? That is the big question.

  5. Pingback: The Israel-Syria-Turkey triangle | Anne's Opinions

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