Executive Summary
Until recently, Israel was a net importer of fossil fuels, importing almost all of its oil and gas needs. Oil exploration has continued in Israel since the discovery of the first well in 1947, but today imported oil meets over 99% of the domestic oil demand. However, recent discoveries of offshore natural gas reserves have transformed Israel from being a net importer to a self-sufficient and an exporter of natural gas. While these offshore discoveries offer many advantages to Israel, they also present new challenges. Israel must find markets to export the surplus gas to, while cheap gas is already flooding the market from the U.S., Australia, and Russia. The U.S. and its large energy corporations serve as key partners in operations, significant shareholders, and an arbiter in export negotiations with Arab neighbors.
Coal-generated power is gradually diminishing and accounted for only 30% of Israel’s power in 2019 compared with 60% in 2015. The Israeli Ministry of Energy’s 2030 goal for electricity generation is to substitute coal primarily by natural gas, reaching a 70% use of natural gas and 30% renewables, while closing all coal plants. Transportation plans call for a gradual transfer to electric cars and natural gas trucks with a ban on imports of gasoline cars starting in 2030. Domestic consumption of natural gas is steadily growing and has reached 11.3 bcm in 2019 (a 10% increase from 2017.) The growth in natural gas consumption was led by the electricity sector, accounting for 83% (9.1 bcm) of generation sources.
Current Market Trends
Oil:
Israel is not a significant oil producer. In 2015, exploratory drilling for oil began in the southern part of the Golan Heights. Israel claimed a massive oil discovery that could supply the country’s oil needs in an important step towards energy independence. However, it remains to be seen whether oil extraction is commercially viable. The discovery is further complicated by the disputed status of the territory, claimed by both Israel and Syria. Israel operates two oil refineries with a combined capacity of about 300,000 barrels per day. The largest, Haifa, has a capacity of 197,000 b/d, while Ashdod’s capacity is about 100,000 b/d after an upgrade in 2013.
Natural Gas:
While Israel remains an oil importing country, offshore natural gas discoveries are quickly transforming Israel’s energy sector. Once completely reliant on imports of oil and gas, Israel is now self-sufficient and an exporter of natural gas. The first significant find was the Tamar gas field, discovered by U.S. company Noble Energy (recently acquired by Chevron) and its local partners. The Tamar field, estimated at 318 BCM recoverable reserves, was discovered in 2009 and provided more than 94% of Israel’s natural gas in 2018. . The transmission of natural gas from the Tamar field commenced in 2013. The first export of natural gas from the state of Israel took place in January of 2017, transporting gas from the Tamar field to Jordan. Additionally, in 2020 the Tamar field started exporting gas to Egypt.
In 2016, Noble Energy and its local partners discovered an even larger reserve, the Leviathan field, 80 miles from the coast. The Leviathan field, estimated at 605 BCM recoverable reserves, is almost double the size of Tamar, and approximately two thirds of the gas discovered to date offshore. Production and exports from the field began in December of 2019. Israeli reserves are predicted to supply the country for 25 years with the cabinet approving a cap on exports of 40% of the natural gas reserves.
Natural Gas Reserves:
Source: Israel Ministry of Energy
Export Agreements and Prospects:
As Israel shifts to an energy exporter, multiple agreements have been proposed and initiated.
Jordan:
In 2014, Noble Energy signed a natural gas sales agreement with two Jordanian companies, the Arab Potash Company and Jordan Bromine Company, to provide exports from the Tamar field. The initial terms of the agreement are for 15 years and a total of 66 billion cubic feet. Exports began in 2017. In 2016, Israel signed a second agreement with Jordan worth over $10 billion to supply gas to the National Electric Power Company NEPCO from the Leviathan field.
Egypt:
Boththe Leviathan and Tamar gas partners signed long-term export contracts with Egyptian supplier Dolphinus Holdings. The Tamar field is expected to provide 25.3 BCM in total, and the Leviathan field is expected to provide up to 60 BCM for a period of up to 15 years. Israeli gas is pumped to Egypt via the EMG Pipeline. This supply of gas is crucial to ensure Egypt as a liquified natural gas exporter.
Source: Israel Ministry of Energy
Europe:
In July of 2020, the Israeli government approved an agreement with European countries for the construction of a subsea pipeline between Israel, Cyprus, Greece and onward to Italy. The Eastern Mediterranean (EastMed) pipeline would transport natural gas from the Leviathan field to Greece and Italy. The pipeline, estimated at $7 billion, will have an initial capacity of 10 billion cubic meters per year. A land and sea survey is currently underway to determine the economic, commercial and physical feasibility of the project.
United Arab Emirates:
In line with the Abraham Accords (a joint statement between Israel, the United Arab Emirates, and the United States, reached on August 13, 2020) the U.S., Israel, and the UAE agree to cooperate in the energy sector including oil, gas, and renewable energy. This may present opportunities for regional projects and additional export avenues.
Competitive Landscape
U.S. company Noble Energy and its local partners discovered the Tamar field in 2009, that provided more than 94% of Israel’s natural gas in 2018. A more recent development by Noble Energy and its local partners is the Leviathan gas field, which started production in late 2019 and has contingent resources totaling 605 bcm of natural gas (almost double the size of Tamar, and approximately two thirds of the gas discovered to date offshore Israel). Additional Exploration and Production International Oil Companies (IOC’s) operating in Israel are Greek company Energean and its partners, developing the Karish and Tanin fields (first gas from the Karish project is anticipated during 2021), as well as block D (awarded in 2019). In addition, British companies Cairn and Pharos and their Israeli partners were awarded blocks A and C in 2019.
Regulatory Environment
The Ministry of Energy is responsible for all of Israel’s energy sectors and natural resources including electricity, fuel, LPG, natural gas, conservation of energy, water, sewage, petroleum explorations, and minerals. It regulates both public and private entities in the market to protect consumers and the environment. The Ministry sets and implements policies to enhance national resilience, improve quality of life, strengthen the Israeli economy, and encourage innovation in the energy sector. The Oil and Gas sector is regulated by two primary laws: The Petroleum Law and the Natural Gas Sector Law.
The Israeli Petroleum Law was enacted in 1952 to govern the exploration and production of petroleum onshore and offshore Israel. Petroleum resources belong to the state, regardless of whether or not they reside on state lands. A petroleum right must be accorded by the Petroleum Commissioner of the Ministry of Energy in order for any person to explore or produce.
The Natural Gas Sector Law governs midstream and downstream activities and sets the licensing requirements for Israeli natural gas infrastructure, development, and storage. These laws set regulations for developing the natural gas sector, ensuring regular and reliable supply, encouraging competition, ensuring safety regulations, and setting tariffs.
In the 2015 and 2016, the Government of Israel adopted two government decisions (number 476, and 1465) known as the Gas Framework, to regulate development in the offshore natural gas sector while promoting competition and a business friendly environment for investors. The framework is intended to attract foreign energy companies to invest in operations in Israel. The Framework included a requirement for Noble Energy and Delek Drilling to divest from smaller fields in order to increase competition.
Best Prospects for U.S. Exporters
Israel plans to use its abundant gas resources to leverage the development of a gas-based auxiliary industrial sector. Coupled with a recent reform in the Israeli electricity market, the Israeli natural gas sector presents opportunities for Independent Power Producers (IPPs) to purchase and operate gas-based electricity generation plants. In addition, the Ministry of Energy is issuing licenses for small scale, gas-based generation sites for industrial plants, which presents opportunities for U.S. manufacturers of relevant gas turbines and engines. Furthermore, with extensive investment in construction of the natural gas pipeline, there are ongoing opportunities for U.S. equipment suppliers and engineering consultants. Lastly, the Israeli government is expected to publish in 2021 additional bids for exploration and production licenses.
U.S. Commercial Service Contact Information
For additional information, please contact:
Naama Myers-Altman
Commercial Specialist
U.S. Commercial Service Israel
Naama.Altman@trade.gov
