Oil & Gas

Israel’s gas export plans complicated by war

June 28, 2024, 6:06 AM

The Leviathan field holds as much as 600 billion cubic metres of gas and Israel is aiming to increase output and exports

Israel aims to double gas exports
Leviathan has reserves of 600bn cubic metres
Analysts ‘doubt’ expansion will happen

Israel has agreed a move to double its natural gas exports from the Leviathan reservoir, but experts warn that tension with Hezbollah and a potential escalation in Lebanon may undermine expansion plans.

The Israeli government is seeking additional revenues to improve an economy that has been badly hit by the war in Gaza.

The energy ministry on Wednesday approved a motion to increase exports by an additional 118 billion cubic metres, from the current 105 billion.

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The volume may rise to up to 145 billion cubic metres “upon fulfilment of certain conditions,” the ministry said.

It also gave the green light to increase supply to the domestic market to improve Israel’s energy security.

Leviathan, one of three Israeli offshore gas fields, is one of the largest in the Mediterranean. It holds estimated proven gas reserves of more than 600 billion cubic metres.

The field is operated by Chevron from the US and Israeli companies NewMed Energy and Ratio Energies.

NewMed Energy, which owns a 45 percent stake, said the three partners are planning to invest between $400 million and $500 million in front-end engineering design and procurement for the field’s expansion.

Yossi Abu, CEO of NewMed Energy, said that the extension will ensure Israel’s exports to the regional market and, “in the foreseeable future, also to the global market.”

The gas is presently sent to the domestic market, Egypt and Jordan. Producers are eyeing more sales, especially to Egypt, and also new clients in Europe and Asia.

Leviathan’s output is 12 billion cubic metres a year which will gradually rise to about 21 billion.

Israeli energy minister Eli Cohen said that increasing exports would strengthen international and diplomatic ties and bring an added windfall to the economy.

The country’s economy contracted by more than 20 percent in the fourth quarter of 2023.

Gas has long been seen in Israel as a means to balance the budget, especially in light of its massive defence spending, according to experts.

“Leviathan has created interdependence with Jordan and Egypt that Israel can exploit for geopolitical leverage,” Andreas Krieg, country risk analyst at King’s College London, said.

Gas supplies to Egypt and Jordan rose by about 25 percent in 2023, despite the war, “showing that energy is not politicised,” Krieg said.

East Med projects have seen an increased interest from investors.

This week Nasdaq-listed private equity company Carlyle established a new company to manage recently acquired assets from UK-based Energean. Energean will focus on the Karish and Karish North gas fields off Israel.

However, analysts say Benjamin Netanyahu’s government has undermined investors’ confidence in Israel as a reliable and secure economy.

“The Leviathan gas field will require investment, and markets are not seeing Israel as favourably as they once did,” Krieg said. “I doubt this expansion can happen as the war on three fronts continues with no end in sight.”