Israel hammering out deal to supply natural gas to Europe via Egypt

Agreement would strengthen Israel’s economic and geopolitical ties with Europe and Egypt.

By JNS.org

For the past month Israel has been negotiating an agreement to sell natural gas to Europe via Egypt, Israel’s Energy Ministry revealed on Sunday.

The negotiations were spurred by a meeting between Israel’s Energy Minister Karine Elharrar and European Commissioner for Energy Kadri Simson in Paris in late March, according to an Energy Ministry spokesman. The Europeans told the Israelis at the meeting that if they could not find alternatives, “they would return to coal mining, despite the great environmental damage caused by it,” the spokesman told JNS.

Following the meeting, an Israeli-European team was set up to work out a political framework in coordination with the Egyptians to enable gas to flow to Europe.

Energy Ministry director-general Lior Schillat, who is leading the talks, said Egypt is involved because Israel doesn’t have the technical resources to send gas to Europe directly. The best way, he said, is to send the gas to Egypt’s liquified natural gas terminal near Alexandria, where it would be processed and sent on to Europe by ship.

The catalyst for Europe’s urgency is the Russian invasion of Ukraine, which has awakened the continent to the danger of relying on Russian fossil fuels; Russia has exploited Europe’s dependence to impose its will. It appears, for example, that European energy companies will submit to Moscow’s demand that it receive gas payments in rubles, a move that would help shore up Russia’s economy while undermining European sanctions.

To free itself of Russian influence, Europe is now talking about building more gas infrastructure, extending the life of coal plants and finding other ways to replace Russian gas. It’s a dramatic reversal, according to Nati Barenboim, general manager of Israel’s Independent Power Producers’ Association.

“If we looked at the European market a year ago, they were talking seriously about closing all their fossil fuel power plants, including gas, and relying only on renewables and batteries. Now they’ve completely changed their philosophy about natural gas,” Barenboim told JNS.

Israel has been looking to export gas to Europe for years, signing a deal in 2020 for an EastMed pipeline that would have extended from Israel’s offshore reserves to Greece. However, the pipeline was put on ice when the Biden administration pulled its support in January, reversing the policy pursued by the Trump administration.

At the same time, the Israeli government’s enthusiasm for gas has cooled.

In December, Elharrar announced that no new offshore gas exploration licenses would be issued this year, in order to enable the government to focus on renewable energy.

Chen Herzog, partner and chief economist at BDO Israel, told JNS that the European request has had an impact on the Israeli government’s attitude and that there are “indications from the government that the stop on gas exploration will not be extended.”

“It has become clear to Israel and the Europeans that natural gas, if only as a transition fuel on the way to renewables, is still important and required,” said Herzog.

The gas deal is a win-win, according to Herzog, as it will strengthen Israel’s economic and geopolitical ties with Europe, and still more so, with Egypt. It will also encourage the future development of Israel’s gas reserves, he said.

“It’s true that the quantity Israel will supply, in relation to the European demand, is not a game-changer,” he said. “But it is important for the Israeli economy because it really opens the possibility for Israel to continue and develop more discoveries.”

While acknowledging the need to help Europe, Barenboim is nonetheless concerned that Israel not give away too much. “We need to think seriously about keeping enough gas for the local market for at least the next 30 to 40 years,” he said, adding that Israel’s consumption of natural gas was increasing by about 1 billion cubic meters a year. (In 2019, Israel consumed about 11.25 billion cubic meters .)

He cited three reasons for the growth: 1) Israel’s population is expanding by almost 2% every year; 2) Israel is building new power and desalination plants that will require gas; and 3) Israel is switching its transportation system over to gas and batteries. He called this last point the “biggest vector increasing demand.”

“With all due respect to the European market, we are surrounded by enemies. We are an island. And thank God we are independent. We should keep our independence. … Nothing will replace the natural gas, not renewables, and unfortunately, due to political issues, also not nuclear power plants,” he said.

Israel’s Ministry of Energy told JNS that reserves in production today are estimated at about 800 billion.

“We will not find an additional Tamar or an additional Leviathan,” said Barenboim, referring to the two biggest reserves off Israel’s coast. “We’ll find a medium-sized reservoir. So that’s why we need to be very careful about how much we allow Europe to export from our reserves.”

Herzog is less worried, basing his confidence on the assumption that Israel will by then have shifted to renewable energy, and the fact that Israel has “set quotas and restrictions on the amount of exports that each company or each field can export in order to ensure long-term energy security.”

EastMed pipelineEgyptEnergyIsrael-European relationsNatural Gas