Israel is finally emerging as a natural gas player in the Mediterranean. In the last week of January, the Israeli Navy conducted a complex drill simulating attacks on the country’s offshore oil and gas infrastructure. The exercise included coordinated operations between dozens of naval vessels and aircraft, and even incorporated a live-fire missile test against an abandoned cargo vessel (imitating an enemy transport filled with Hamas or Hezbollah militants). Israel’s week-long “Raging Sea” operation comes on the heels of two joint military drills with Cypriot forces held in November and December – presumably to protect the region’s newest and most valuable energy asset – the Leviathan offshore gas field.
The Leviathan falls almost exclusively in Israeli territorial waters, but neighboring states have demonstrated a mutual interest in seeing the reservoir and surrounding plays developed. Indeed, the vast economic potential of Eastern Mediterranean hydrocarbons has galvanized diplomatic and economic ties between Israel, Cyprus, and Greece. In December, the three nations held a trilateral summit in Beersheba, Israel, where they agreed to launch the EastMed pipeline project, a $7 billion endeavor that would see Israeli gas pumped to Greece via Cyprus and Crete at a rate of 10 billion cubic meters (bcm) per annum. Once in Greece, the gas would then connect to the 20 bcm per annum Poseidon pipeline in Italy, and then onward to the rest of Europe.
The EastMed pipeline is expected to bring billions of dollars in lifetime revenues for participating nations, either in the form of direct gas sales or transit fees. It would also mean cheaper gas prices for buyers in mainland Europe – much to the discontent of Russian and Arab gas suppliers.
The Leviathan Find
First discovered in 2010, The Leviathan Reservoir is one of the world’s largest offshore gas finds of the 21st century. The Field is officially estimated to hold 500 – 800 billion cubic meters of natural gas, enough to satisfy 100% of Israel’s domestic electricity needs for more than 40 years and leave enough for exports.
On January 31, 2019, Israeli Prime Ministers Benjamin Netanyahu held a ceremony inaugurating the foundation of the Leviathan natural gas rig. The base of the structure, now located 10km from Israel’s shores, was built over an 18-month period by Israel’s Delek Drilling (OTCMKTS: DGRLY) and its U.S. partner, Noble Energy (NYSE:NE). The 100-meter rig weighs over 15,000 tons and took over a month to complete its journey from Texas to Israel. Its completion is a political win for Netanyahu, who championed the project in the face of staunch environmentalist opposition. Green groups argued against the construction on the basis of proximity to coastal communities, but ultimately a revised Gas Framework Agreement was passed by the Knesset in late May 2016 approving Leviathan. The project is now anticipated to be completed in July when the topside or “jacket” of the platform arrives – and with huge implications.
Yuval Steinitz, Israel’s Minister of Energy, sees the development of the deposit as an opportunity to counter what he describes as a “decades-long effort” by Arab nations to use supply pipelines of “oil and natural gas in order to try to pressure [Europe against] Israel.”
Israel is also in the midst of an aggressive fuel switching program, where they are shuttering dirty coal plants in favor of more efficient, cleaner burning combined cycle natural gas (CCNG) plants. Just five years ago, gas accounted for 30% of electricity generation — today it is closer to 70%. By 2020 the country hopes to limit coal-fired electricity to under 15%.
Leviathan will mean cleaner air, increased government revenues, and greater geopolitical leverage for Israel.
Reducing Russia’s Energy Influence in Europe
Russian President Vladimir Putin’s dissatisfaction with the project can be explained in the context of its challenge to Russia’s domestic gas giant Gazprom (OTCMKTS: OGZPY) and its dominant position in the European gas market. This is evidenced by Putin’s veiled threats against PM Netanyahu. According to a senior Israeli official, who spoke with me on the condition of anonymity, Israel rebutted an attempt by Russia to muscle its way into the Leviathan project by involving Gazprom, currently under U.S. sanctions. Putin promised Netanyahu that he would restrain both Syria and Hezbollah from interfering in the project if the state gas company was granted access. If not, however, he could make no such guarantee. The implied threat is clear.
The same official also suggested that Leviathan’s reserves are in fact considerably larger than currently believed. If true, Mediterranean plays such as Zohr, Leviathan, Aphrodite and future fields together may challenge Moscow’s energy stranglehold on the E.U., especially in the South. Today, the Russian Federation’s gas exports to Europe have never been greater – exceeding 200 billion cubic meters in 2018, which is 3.5% higher than the previous year. Gazprom currently controls 35% of the gas market in Europe and has plans to double its global exports by 2030.
It’s the Middle East: Disagreements over Maritime Territory
The extraction rights for the Leviathan reservoir are a major point of contention in Israeli-Lebanese relations – with the Hezbollah-dominated Government of Lebanon claiming at least partial ownership of the deposits. The dispute is further complicated by the fact that an official border between the two nations has never been fully established. Security concerns vis-a-vis Lebanon, particularly from the Iranian owned Hezbollah (recognized by the U.S. as a terrorist organization), have forced planners to position the rig closer to the Isreali coastline.
Cyprus’s maritime border situation is even more precarious than Israel’s. Turkey, aspiring to be the Mediterranean’s energy transit hub, insists that ownership of the natural resources around the island of Cyprus are still in negotiation. This has previously led to diplomatic disputes and even the suspension of drilling in 2016.
In an exclusive interview with Yeni Şafak, Dr. Kumbaroğlu Gürkan, President of the Turkish-based Energy Policy Research Center, argued that Turkey’s deep discontent with the maritime issue might result in the creation of a “Northeastern Mediterranean Gas Forum” which could be based on Northern Cyprus. According to Gürkan, the “initiative would split the East Med in half.” As no country outside of Turkey recognizes Northern Cyprus, this scheme is far-fetched. But as the bridge for Eurasian and Middle Eastern energy into Europe, Turkey has a great deal of regional power in these matters. Attempts by Ankara to stymie any portion of the EastMed-Poseidon project should not be taken lightly.
The geopolitical reality of the situation is clear: energy production in the eastern Mediterranean will continue to strengthen ties between Israel and her neighbors, and simultaneously improve the energy security circumstances of Europe. Despite major extra-territorial challenges from Lebanon/Iran/Hezbollah, and Turkey — the production of the Leviathan Gas Field is Israel’s best option to bolster its national security, achieve energy independence, reduce carbon emissions, accumulate technological expertise, and become a player of significance in global gas markets.