RUTHFULLY YOURS

• Over time the agreement could spur new investment in gas exploration and infrastructure in Cyprus, Egypt, Greece and Israel and potentially transform the Eastern Mediterranean into an energy powerhouse.
• European Commission President Ursula von der Leyen described the agreement as “a big step forward in the energy supply to Europe” and “the first step leading to a Mediterranean-wide agreement.”
• “The war in Ukraine has really changed the equation in a way, including for the EU where they’re willing to overlook, at least in the short term, the desire to go green as soon as possible.” — Dov Lieber, The Wall Street Journal, June 16, 2022.

The European Union has signed a memorandum of understanding with Israel and Egypt that paves the way for potentially significant quantities of Israeli natural gas to be shipped to Europe.

The trilateral agreement, signed on June 15 in Cairo at a meeting of the East Mediterranean Gas Forum (EMGF), an intergovernmental organization, calls for Israeli gas to be sent to liquefied natural gas (LNG) facilities in Egypt. From there, the gas in liquid form will be transported across the Mediterranean Sea on LNG vessels to markets in Europe.

Initially, the volumes of Israeli gas sent to Europe will be relatively low due to a combination of factors, including infrastructure limitations, the high costs of producing and shipping LNG, and the politics of climate change and clean energy. Over time, however, the agreement could spur new investment in gas exploration and infrastructure in Cyprus, Egypt, Greece and Israel and potentially transform the Eastern Mediterranean into an energy powerhouse.

European Commission President Ursula von der Leyen described the agreement as “a big step forward in the energy supply to Europe” and “the first step leading to a Mediterranean-wide agreement.”

Non-Russian Energy

The EU has been scrambling to reduce its dependence on gas from Russia since February 2022, when Russian President Vladimir Putin invaded Ukraine. In 2021, Russia supplied the EU with around 155 billion cubic meters (bcm), or 45% of the bloc’s total gas imports, according to the International Energy Agency.

On March 8, the European Commission, the EU’s administrative arm, unveiled an ambitious proposal to reduce imports of Russian gas by two-thirds before the end of 2022, and to make the EU independent from Russian fossil fuels by 2030. It called for increasing LNG imports from non-Russian sources by 50 billion cubic meters (bcm) in 2022.

Since then, non-Russian gas producers — including Algeria, Angola, Congo, Nigeria, Qatar, and the United States — have agreed to supply the EU with gas to reduce the bloc’s dependence on Russia.

The amount of natural gas that Israel can deliver immediately is relatively small: over the short term, it could supply Europe with around 10 bcm per year (approximately 2.5% of the EU’s total gas consumption of 350 bcm per year).

Based on the new agreement with Egypt and Israel, the European Union expects to import 7 bcm of LNG from Egypt in 2022, 2 bcm more than originally planned, according to an EU spokesman quoted by the Financial Times. The EU could import up to 10 bcm of LNG from Egypt in 2023.

Most of the LNG exported to Europe by Egypt originates in Israel, which has increased gas production but does not have large-scale export facilities of its own. Israel delivers 5 bcm of gas annually to Egypt by means of the Eastern Mediterranean Gas Pipeline (EMG), which runs from Ashkelon in southern Israel to Arish in the northern Sinai Peninsula. The pipeline has a maximum capacity of 7 bcm per year.

In February 2022, Israel began shipping an additional 2.5-3 bcm to Egypt by means of the Jordanian section of the Arab Gas Pipeline (AGP), which runs from Aqaba to Arish.

Israel and Egypt are discussing the construction of additional pipelines that would more than double Israel gas exports to Egypt. The two countries recently agreed to build a second undersea pipeline that would transport 10 bcm of gas annually from Israel’s offshore Leviathan field directly to LNG facilities in northern Egypt.

Israel is also considering building a new onshore pipeline that would connect the Israeli and Egyptian natural gas grids. The pipeline would allow Israel to increase supplies to Egypt by an additional 3-5 bcm per year.

The existing and future pipelines could result in Israel and Egypt shipping approximately 30 bcm of LNG annually to the EU in coming years. This would amount to 8.5% of the EU’s total gas consumption and roughly 20% of the amount previously supplied by Russia.

In an interview with Bloomberg, Jonathan Miller, the special envoy for energy at Israel’s Ministry of Foreign Affairs, said:

“Israel is willing to do as much as possible in supporting the European energy challenges. The big question is how does this gas get to Europe, and this remains one of the challenges. In the short term, these are not big figures because we have to rely on existing infrastructure, but I think it’s an important time for Europe, Israel, Egypt and partners to look to mid-term and long-term solutions on how we get to the European market.”

LNG Alternatives

Most energy analysts agree that LNG imports are only a temporary solution for Europe’s gas needs. Over the long term, undersea pipelines between Israel and Europe could offer a less expensive and more stable source of gas compared to LNG. Two gas pipeline alternatives are currently under discussion.

One option is the construction of a $1.5 billion, 500-kilometer (300-mile) pipeline between Israel’s largest offshore natural gas field, Leviathan, and Turkey, from where Israeli gas would be forwarded to southern Europe through existing pipeline infrastructure. This option, involving up to 15 bcm annually, would leave Israel strategically dependent on Turkey, whose president, Recep Tayyip Erdoğan, has been hostile to the Jewish state.

The Turkish government has always insisted that Israeli gas can only be sold to Europe through Turkey. In 2016, Turkish and Israeli officials tried to sign a deal to deliver gas, but Erdoğan’s demand that Israel lift its blockade on the Hamas-run Gaza Strip made it impossible to reach an agreement. Israeli President Isaac Herzog recently visited Ankara for talks with Erdoğan to repair bilateral relations that have long been strained due, among other issues, to the Turkish leader’s anti-Semitism, anti-Zionism and support for Palestinian terrorism.

The second option involves the 2,000-kilometer (1,242-mile) Eastern Mediterranean (EastMed) pipeline, a $6 billion project aimed at shipping up to 20 bcm of gas annually natural gas from Israeli and Cypriot waters to Greece and Italy.

The EastMed pipeline has been in the planning stages for more than a decade. The Israel-Greece-Cyprus project — joined by Bulgaria, Hungary, North Macedonia, Romania and Serbia — has long been seen as a way to diversify natural gas supplies to Europe.

In January 2020, the leaders of Israel, Greece and Cyprus — with strong support from the Trump administration — signed the EastMed intergovernmental agreement, which aimed at reaching a final investment decision by 2022 and completing the pipeline by 2025. The EastMed project could eventually supply up to 10% of Europe’s natural gas needs.

In November 2021, the European Commission included the EastMed pipeline in its list of so-called Projects of Common Interest (PCI), priority cross-border energy projects aimed at integrating the EU’s energy infrastructure.

In January 2022, just before Russia invaded Ukraine, the Biden administration abruptly announced that it no longer supported EastMed because the pipeline was antithetical to its “climate goals.” Some analysts said that Biden’s decision effectively killed the project because without American political support, such a costly project would be difficult to finance.

The war in Ukraine may lead to the revival of the EastMed project, regardless of opposition from the White House. Former Israeli Energy Minister Yuval Steinitz, a key proponent of EastMed, recently called on the Israeli government to “urgently promote” the building of the pipeline as quickly as possible.

On May 23, at a conference — “Energy and the Eastern Mediterranean in 2022” — organized by the Jerusalem Center for Public Affairs, Steinitz said that EastMed is economically and technically feasible and “makes sense.” Speaking at the same conference, Italian energy executive Fabrizio Mattana said that EastMed was the most secure option compared to other gas export solutions. He estimated that EastMed would take up to four years to complete after an investment decision is reached.

Boosting Production

Whether investments in new infrastructure projects such as pipelines are made depend on several factors, including the amount of gas available for export, and future demand from the European Union.

Israel’s proven natural gas reserves are estimated to be 600 bcm, according to BP’s Statistical Review of World Energy. Israel expects to find another 2.2 trillion cubic meters in its offshore fields, Steinitz told a World Energy Congress in Istanbul.

Over the next few years, Israel is on track to double gas production to about 40 bcm from 20 bcm currently as it expands existing projects and brings new fields online, according to industry officials interviewed by the Reuters news agency.

On May 8, the exploration company Energean reported that it had discovered 8 bcm in the Athena well off the coast of Israel, and that the area around the well could contain up to 58 bcm of gas.

The European Union, as part of the memorandum of understanding, has pledged to encourage European energy companies to participate in projects to explore for new gas fields in the Eastern Mediterranean.

In an interview with the Turkish state-run Anadolu news agency, Elai Rettig, professor of political studies at Bar-Ilan University in Israel, said that Europe’s demand for energy could potentially become a windfall for the Eastern Mediterranean:

“Europe needs as many alternative sources as possible. The more export deals that are made, the more infrastructure will be built, the bigger the chances are that new energy companies will come to look for more gas in the Eastern Mediterranean.”

Speaking to the Financial Times, Martijn Murphy, principal analyst for North Africa at Wood Mackenzie, the oil and gas consultancy, said that the deal could help foster further development of Israeli gas fields:

“It will help Israel in terms of attracting international oil companies into the country who can be confident that there’s going to be a market to sell the gas on.”

Israel’s Energy Minister Karine Elharrar said the agreement with the EU could cement Israel’s role on the global energy stage:

“This is a tremendous moment in which little Israel is becoming a significant player in the global energy market. The memorandum of understanding will allow Israel to export Israeli natural gas to Europe for the first time, and it is even more impressive when one looks at the string of significant agreements we have signed in the past year, positioning Israel and the Israeli energy and water economy as a key player in the world.”

Israel correspondent for the Wall Street Journal, Dov Lieber, said that the EU deal would be beneficial to Israel and Egypt:

“This isn’t going to make up for the loss of Russian gas, not even close, but it’s part of the EU’s diversification efforts. They will get at least some of their gas from the Eastern Mediterranean rather than relying on one partner. But for Israel and Egypt, it’s actually a major significance for both countries.

“This is the first time Israel is exporting gas to Europe, obviously a major customer. Up until not too long ago, Israel itself was an importer of natural gas, and all the natural gas discoveries basically happened in the last decade or so. It’s basically turned around its whole energy image of an importer to now an exporter on the world stage exporting to clients like the EU.

“Egypt also has benefited from all these discoveries of natural gas in the Eastern Mediterranean. But because it has such a large population, it needs to reserve a lot of its own gas for its local market, but it has these liquification facilities that Israel doesn’t have that allows it to be the exporter of the gas to Europe. So it will help Egypt become basically this regional hub for gas.”

The EU agreement states that natural gas will play a key role in the energy economy of EU countries only until 2030, at which point its consumption is to gradually decrease until 2050, when the bloc hopes to reach its zero-emissions target.

The Wall Street Journal’s Dov Lieber concluded that the EU’s urgent need to find enough supplies to replace Russian gas is outweighing longer-term goals to slash emissions:

“Exploration for natural gas in the Eastern Mediterranean only began producing results up to about two decades ago, and slowly the major discoveries have started to come through. But at the same time, these discoveries of natural gas in the Eastern Mediterranean really happened at a time when the world was looking to transition away from fossil fuels, transition away from natural gas and towards more greener options, to decarbonize.

“The war in Ukraine has really changed the equation in a way, including for the EU, where they’re willing to overlook, at least in the short term, the desire to go green as soon as possible. They’re willing to build out the continued exploration, for example, and to build out infrastructure a little more in order to keep the gas flowing for now, but they haven’t really invested too much in this industry because it looked like energy was going in a very different direction.”