The Sedco Express drilling rig above the Tamar gas field in the Mediterranean.
In January 17, 2009, a team led by the Texas firm, Noble Energy Inc., discovered methane in a field (Tamar) now estimated to contain 275 billion cubic meters (9.7 trillion cubic feet) of natural gas—about half of what Europe consumes annually. A year later, the same team announced the discovery of monster gas field to the west of Tamar (Leviathan), which alone contains about as much gas as Europe consumes annually. There have been several other finds of smaller, but nevertheless substantial fields. In neighboring Cyprus, another field (Aphrodite) comparable to Tamar was discovered by Noble Energy, abutting and even slightly spilling into Israel’s waters. In short, Israel and its neighbor now sit atop roughly two years’ worth of European consumption.
The Geostrategic Impact of Gas Supply
Israel’s newfound energy abundance will dramatically affect its economy and resource realities, representing a major strategic change. The amount of gas discovered exceeds projected Israeli demand for at least a half century. As such, Israel will become a net exporter of gas.
While the currently known amount of commercially producible hydrocarbons does not itself make Israel an energy super-major or strategic powerhouse, Israel may have an opportunity to leverage its supply of marginally critical amounts of gas to either Europe or Asia. Unlike oil, gas neither flows to spot markets nor is sold en route to a consumer. There is no global market price like Brent Sweet Crude for oil. Gas is priced unique to each deal, nation or region. It is not globally traded as a commodity. The infrastructure to transmit gas—either via pipelines or liquefaction—is so complex, demanding, and expensive that marketing agreements and supply patterns are locked in for the long term, indeed years before the molecules even flow. Even liquefied natural gas (LNG) shipped from port to port is essentially a “locked” structure much like train lines.
The countries supplying and receiving the gas, therefore, tether their critical energy policies to the expectation of a particular supply chain, and to a particular diplomatic relationship. Since the severing of a particular source of gas is not easily replaced in an ad hoc fashion by oversupply from elsewhere, it is strategically important for a nation, even when it only represents a relatively small portion of its overall supply. Thus, even modest amounts of Israeli gas exports can carry significant strategic leverage.
The short-term inflexibility of gas trade and the difficulty of replacing disrupted supply also imply that energy prices for consumers and revenues for suppliers can be easily manipulated by marginal increases or decreases. This price sensitivity makes the question of gas supply strategically vulnerable to the geopolitical interests and machinations of third parties. Two factors—the strategic context of gas transmission structures and third-party strategic ambitions—are often as important to understanding the overall strategic significance of a specific gas supply relationship as the two dimensional question of supply and consumption for the two nations involved in the trade themselves.
Exporting to Europe
There are five existing or proposed pipelines supplying gas to Europe from north Africa: the Trans-med pipeline (carrying 30.2 bcm/yr via Tunisia and Sicily), the Maghreb-Europe Gas Pipeline (carrying 12 bcm/yr via Gibraltar), the Medgaz pipeline (from Algeria to Almeria, Spain carrying 8 bcm, but only now about to come on-line), Greenstream (through Western Libya to Sicily had carried 11 bcm/yr but is now cut off), and finally the GALSI pipeline (which is still being planned and will run under the Mediterranean from far-eastern Algeria).
All these pipeline structures originate in the Hassi al-Riml field in Algeria. In short, three pipelines carrying almost 50 bcm/yr into Europe all originate at one point. Moreover, while the EU sought to diversify its supply of gas by building the Trans-Saharan pipeline, which would carry Nigerian gas north, even that pipe passes through to Hassi al-Riml, where it hooks up with the other three currently operating pipelines.
This makes roughly 18 percent of Europe’s gas supply extremely vulnerable. European experts—especially those energy companies along the southern littoral—are currently rethinking their dependence and diversification strategy. Europe’s grim reality could represent a unique window of opportunity for Israel to nail down long-term agreements and align export policy with a broader effort to reset Israeli-European relations.
The Lure of Asia
Despite the strategic benefit Europe represents, Asia may yet emerge as Israel’s preferred export destination. While the prices the Leviathan partners could demand by trading to Asia are higher, price is only partially the reason Asia will likely emerge as the most attractive export destination.
Any Israeli gas trade with Europe would implicitly impact Russia’s domination of Europe’s gas supply. Not only would Israeli gas offer a backstop to any Russian threat to cut off supply as blackmail, but also a marginal addition of Israeli supply can create oversupply. Even light oversupply can cause prices to drop sharply in the European region—which whittles down the bottom line of Russian gas companies integrally linked to Russia’s ruling elite. In short, unless Russia manages to gain controlling interests in Israel’s gas sector, Russia will fear Israeli exports will tread on its sacred interests—a strategic challenge which Moscow will answer in ways which could give both Israel and Europe pause before proceeding.
Additionally, Europe may be vulnerable, but its current demand is largely met. Asia, on the other hand, has major gaps approaching between its anticipated demand and supply. While Europe may eventually realize its vulnerability can be addressed by buying Israeli gas, Asia already realizes it. That explains why the two most serious contenders to attempt or successfully buy into Leviathan have been Asian companies (CNOOC and Woodside).
Finally, the Leviathan partners have signed an initial agreement with the Australian firm, Woodside, to acquire about a third of the rights to the field in order to tap into its liquefaction experience, marketing structure, and capital. But Woodside is oriented toward marketing gas in Asia, and has structured the initial agreement to a schedule for building a liquefaction plant generally assumed to service trade to Asia. In short, the shape of the partnership will have a significant impact on whether the gas flows east or west.
While the export destination of Israel’s gas is strategically important, the context and geostrategic circumstances of how gas might be transmitted to either Europe or Asia must first be examined, since these latter factors may dictate the shape of the former.
Export Transmission Structures via Cyprus
Early discussions after Leviathan’s discovery focused on building a pipeline from Israeli fields, through Cyprus, to Greece. But the tide has shifted in the last two years. Tensions over Cyprus, the growing role Gazprom and Russia appear to be playing there, and the overall instability and potential corruption which appears to be plaguing Cypriot politics and business, reminded many how problematic it can be to place critical infrastructure there.
Moreover, the attractiveness of Cyprus diminished within the context of change in Egypt and the entry of Woodside as an equal partner in the Leviathan field. Any eastward-directed export infrastructure anchored to Cyprus would tend to rely on the Suez Canal, in essence locking what will emerge as Israel’s most vital industry into a trade route that passes through an Egypt politically dominated by the Muslim Brotherhood, which remains ideologically opposed to provisions in the 1979 peace treaty allowing Israeli passage through the Canal.
Finally, although Cyprus has enjoyed a record of stability since the mid-1970s, several key trends indicate that instability will likely rise on Cyprus:
- Turkish Prime Minister Erdogan’s desire to reestablish a neo-Ottoman imperial empire under a rehabilitated “Caliphate” has driven Turkey to regard the Greek islands, the Balkans, and Cyprus to the north, as well as Syria, Iraq, Lebanon, and Israel to the south as “lost territories.”
- While never having surrendered its claims in Cyprus, Turkey’s attempt to enter the European state system has been linked to the island’s apparent stability since the mid-1970s. The more Turkey reorients and aspires to assert its Middle Eastern and Islamic credentials, the more its claims in Cyprus assume importance and intensity.
The Turkish Dilemma
Most recently, the Levant Basin Energy Report posited the idea that Israel could build an export pipeline from the Leviathan field to Turkey, and from Turkey to Europe. At the end of January 2013, Director General of Israel’s Ministry of Energy and Water Resources Shaul Tzemach indicated that Turkey could be an anchor customer for Israeli gas, and that the option of gas exports to Turkey was practical, despite the current reigning political tensions. As reported in Globes, Tzemach said of cooperating with Turkey, “There are quite a few geopolitical barriers, but if we know how to create the right conditions, it is possible. Gas should be used as a stabilizing factor which leads to cooperation between countries and includes multinationals and international parties with an interest in regional stability.”
Officials from Turkey, however, appear less eager. Almost the same day Tzemach was quoted, Turkey’s Deputy Energy Minister told the Turkish daily Hurriyet that even if Israel 1) fulfilled Turkish demands for an open apology for the Mavi Marmara incident, 2) compensated families of the victims and 3) ended the blockade on Gaza—all dubious in and of themselves—Israel’s resource cooperation with Greek Cyprus would preclude any energy cooperation with Turkey.
And even if such a pipeline were built, it would be subject to:
- Geopolitical blackmail on Ankara’s part.
- Sabotage: Pipelines to Turkey are bombed regularly. Indeed, it is precisely the tenuousness of pipeline supply to Turkey that led to the Turkish government’s interest in the Israeli pipeline, which it will be no more able to secure than its other pipelines.
- Geostrategic opposition from Moscow: Israeli gas poses a competitive pressure on Russia’s supply to the Turkish and European markets. It may be possible (but unlikely) to address this specific concern by bringing Gazprom into the deal in a controlling position, but bringing in Gazprom would only multiply the geopolitical vulnerability to blackmail and expose the pipeline system to Turkish-Russian and Russian-Israeli vagaries in addition to those between Turkey and Israel.
But perhaps even more important than the mercantile problem this poses to Russia, Moscow now sees itself threatened by the rise of a resurgent Ottoman Sunni empire to its south and is seeking every way possible to cut Ankara’s ambitions to size. Being on the wrong side of Russia and Iran on the issue of a facility or structure in Turkey that cannot effectively be protected from terror is a risky endeavor. And both Tehran and Moscow would be tempted towards sabotage.
The Jordanian Option
Some in the Israeli government and political spectrum view the anchoring of an export structure to a liquefaction terminal in Aqaba on the Red Sea as an important strategic objective. Moreover, there is a powerful constituency, reinforced by international diplomatic preferences, to advance the option of lashing Israel and Jordan tightly through natural gas structures as a way to advance the stalled peace process.
Still, it is highly unlikely that this option will ultimately prevail. Israel’s recent experience with Egypt, where half of Israel’s natural gas supply was permanently severed because of the destruction of the Egyptian-Israeli gas pipeline following the collapse of the Mubarak regime, suggests Israel will view with apprehension any scheme to anchor its critical infrastructure and an emerging major portion of its GDP to a potentially unstable Jordanian regime.
Even assuming the Jordanian government does survive, political conflict in the Middle East in the age of the “Arab Spring” is increasingly expressing itself through attacks on energy infrastructure, particularly pipelines. Since Iran, Syria, and Hezbollah already have defined Israel’s gas industry as a strategic target, Israel’s government expects them to attempt to strike Israel’s export structure at any point of vulnerability. Moreover, Iran and Turkey—which have had some role in attacks on each others’ pipelines in Iraq, Syria, and Turkey—both view the successful emergence of Aqaba as a major energy transfer hub with tremendous strategic apprehension. In order to vie for control and undermine the viability of an emerging Kurdish state, both want all northern Iraqi gas and oil to either remain undeveloped or flow through their respective territories and are likely to sabotage any alternative, such as Aqaba. Israel’s Defense Forces (IDF) and the broader security establishment will almost certainly adopt the view that they cannot guarantee the protection of this critical infrastructure—which they are tasked to do—unless it is accompanied by the IDF’s direct presence.
Liquefying the Gas at Home
It is likely that the gas will be liquefied on Israeli territory and exported from there. Indeed, not only did the Tzemach Committee—tasked by the Israeli government to recommend overall natural gas policy, which the government may enact as law—expressed a “strong preference” for any export facility to be located on Israeli territory. Globes reported that officials from Israel’s Ministry of Energy and Water Resources have said the terminal would be built in Israel despite the bureaucratic difficulties, since “no sensible government is prepared to have its gas export installations in another country, however friendly it may be.”
Israel’s government may also seek to leverage and align gas export policy to broader foreign policy objectives by favoring a flexible export strategy that exploits the country’s geographic position to service both Asia and Europe, allowing it to contemplate a dual-continent approach. Such a plan could potentially involve the construction of LNG terminals anchored at either end to the Eilat-Ashqelon Pipeline Corp. (EAPC) structure, depending on the volumes of resource discovered in the Levant Basin.
Indeed, many Israeli officials view the importance of gas export in the context of Egypt’s deterioration—not only in terms of hostility to Israel, but in terms of anti-Western tendencies and chaos, all of which raise questions about the viability of the Suez Canal as a major European-Asian transit route. These officials see a cross-Israel natural gas pipeline as an additional anchor for transforming Israel into a major trans-ocean passageway connecting the Mediterranean and Red Seas. This would reassert Israel as a major trade and transportation route as an alternative to the Suez, and by developing the Eilat area and by extension, as Europe’s portal to Asia. The result would be to enhance Israel’s strategic value to the West.
David Wurmser is the founder of the Delphi Global Analysis Group.