Israel's Oil and Gas Sector
In the past 20 years, the country has transformed from a net importer of fossil fuels, to being self-sufficient and an exporter of natural gas (although it still imports crude oil and coal). Coal-generated power is gradually diminishing and accounted for only 26% of Israel’s power in 2020 compared with 60% in 2015. The Israeli Ministry of Energy’s 2030 goal for electricity generation is to replace coal primarily with natural gas, reaching an energy mix comprised of 70% natural gas and 30% renewables, while closing all coal plants. Domestic consumption of natural gas is steadily growing and has reached 12.3 billion cubic meters (bcm) in 2021 (a 4.5% increase from 2020.) The growth in natural gas consumption was led by the electricity sector, accounting for 79% of generation sources.
In 2009, it was U.S. company Noble Energy (acquired by Chevron in 2020) and its local partners who discovered the “Tamar” offshore gas field, which until 2020 provided the majority of Israel’s natural gas. A more recent development by Chevron and its local partners is the “Leviathan” offshore 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). In 2021, Leviathan surpassed Tamar and provided more than 50% of Israel’s natural gas. Additional Exploration and Production International Oil Companies (IOC’s) operating in Israel are Greece’s Energean and its partners, developing the “Karish” and “Tanin” fields (the first gas from the Karish project is anticipated in late 2022), 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.
Even with the increases in domestic natural gas demand, the export market for natural gas produced in Israel is growing significantly. Total exports of natural gas in 2021 increased by 68% compared to 2020, of which exports to Egypt grew by 96%, and exports to Jordan grew by 46%.
Emerging Opportunities
The Israeli government periodically issues international tenders for offshore Exploration and Productions licenses. In December 2021, Minister of Energy Karine Elharrar announced her decision to halt new exploration permits in an attempt to focus on renewable energy. However, in June 2022, the minister reversed her decision and instructed her ministry to prepare for the launch of Israel’s fourth offshore bid round. The fourth bid is expected to be published in Q4 of 2022 and will include approximately four zones. According to a 2020 U.S. Geological Survey (USGS) report, the Eastern Mediterranean area has estimated undiscovered, technically recoverable mean resources of 879 million barrels of conventional oil and 286.2 trillion cubic feet of conventional gas.
Europe is looking to diversify its gas supply in the wake of the war in Ukraine and the global energy crisis. In this context, Israel, Egypt, and the EU signed a Memorandum of Understanding (MOU) last June, capturing the parties’ interest in increased collaboration on trade, transportation, and the export of natural gas to EU countries. In addition to the existing infrastructure already supporting exports to Egypt and to Jordan, the Government of Israel is evaluating a few other pipelines that will allow increased exports to these two markets and to new markets. One of the options is a subsea pipeline to Egypt where the gas will be liquified and shipped to Europe. Another option is the ambitious “East-Med” subsea pipeline, currently pending Final Investment Decision, intended to convey gas from Israel’s and Cyprus’ offshore gas fields to Europe.
There are no commercial oil wells in the country and Israel is still relying on imports for oil. Crude oil is transported to one of Israel’s two refineries: ‘Bazan’ refinery in the north, and ‘Paz’ refinery in the south. Both refineries are privately owned.
Keys to Success for U.S. Exporters
Personal connections are of utmost importance in the Israeli market. For a first business outreach to a potential partner or government official, it is preferable to be referred by local contacts who can facilitate a warm introduction. Israeli stakeholders expect international companies to visit the market regularly and establish a direct relationship with local partners.
While the use of an agent or a distributor is not legally required (except for some government procurement or sensitive products), partnering with a local representative with industry contacts and technical skills can be a key factor to your success in the market. Due to Israel’s small geographic size (approximately the size of New Jersey), distributors and agents normally demand exclusive representation rights.
As for government tenders, Israel is increasingly opening to international players, especially in large infrastructure projects in which Israeli companies do not possess experience. Israel is a signatory to the WTO Government Procurement Agreement (GPA) and is therefore committed to publishing international tenders over certain thresholds, for tenders issued by government ministries as well as by state-owned companies. For some international tenders, foreign companies are required to enter into offset agreements per Israel’s “Mandatory Industrial Cooperation” policy.
How can the U.S. Commercial Service assist exporters in the Israel market?
The U.S. Commercial Service (CS), part of the U.S. Department of Commerce’s International Trade Administration, offers American companies a full range of expertise in international trade. Companies can find assistance locally in more than 100 CS offices nationwide and in more than 70 international offices (such as in Israel).
CS provides customized services to American exporters, such as matchmaking with international partners and targeted market research. Other than customized services, CS offers market intelligence and real-time leads regarding opportunities in foreign markets. Furthermore, CS provides Advocacy support to eligible exporters, helping to level the playing field on behalf of U.S. companies bidding on international public-sector contracts. Another important support mechanism is Commercial Diplomacy, i.e., reducing, removing, and preventing trade barriers in international markets vis-à-vis foreign governments.
Lastly, the U.S. Government offers several financing mechanisms to American exporters. In Israel, the Export-Import Bank of the United States (EXIM Bank) offers project and structured financing to U.S. exporters and their Israeli customers.
To learn more about opportunities in the Israeli oil and gas sector and how CS may be able to support your company, please reach out to Naama.Altman@trade.gov and the U.S. Commercial Service in Israel.