Israel has grand plans to ride to Europe’s rescue by offering a ready supply of natural gas to help the continent shake off its reliance on Russian energy. On paper, getting gas from the eastern Mediterranean holds plenty of appeal for the world’s most energy-import-dependent region, which was on the prowl for alternative suppliers even before Moscow’s incursion into Ukraine.
But building a pipeline from Israel to Greece, where the gas would then be shipped overland to other European countries, would be a hugely complicated and expensive way to get relatively small volumes of natural gas into Europe. The proposed pipeline would carry about 8 billion to 12 billion cubic meters of gas a year — a drop compared with the European Union’s own gas consumption in excess of 450 billion cubic meters a year and the 160 billion cubic meters annually supplied by Russia.
Instead, Israel’s growing energy reserves would probably be better used fueling its own domestic market and its next-door neighbors like Jordan, if wary Arab politicians don’t torpedo the idea of doing deals with Israel.
Israel had long been one of the few Middle Eastern countries without abundant reserves of energy. But in recent years — and even recent days — big discoveries of offshore natural gas fields have given Israel not just a shot at energy independence, but the chance to turn into a regional energy powerhouse. This year, energy firms working the gas fields announced plans to export gas to Jordan and Egypt. Israel’s main offshore fields hold an estimated 33 trillion cubic feet of natural gas; the latest find could add another 3 trillion cubic feet. Russia, the holder of the world’s largest gas reserves, has 1,688 trillion cubic feet of gas.
In recent weeks, Israeli officials and some Mediterranean neighbors such as Cyprus and Greece have upped their ambitions. They’ve been pressing Brussels to consider backing a pipeline from Israel, through Cyprus, into Greece, and finally into the rest of Europe that would be explicitly designed to help neuter the Russian energy bear.
“We can provide the gas, and the best way they can have it, and I believe at the cheapest price,” Israeli Energy Minister Silvan Shalom told Bloombergthis month.
Getting EU financial backing for the project, which Israelis figure could cost about $6 billion and which outside analysts estimate at nearly twice that, is crucial to making the economics work. That would likely require some sort of European willingness to cough up the cash to pay for the massive infrastructure investments needed to diversify Europe’s own energy supplies.
But EU officials aren’t ready to dive in with both feet quite yet. Maros Sefcovic, the EU vice president for energy union — a new position in Brussels meant to unify European energy policies — proposed carrying out a feasibility study next year on the pipeline’s proposed route; he cited in particular the project’s technical challenges.
And they are considerable. Running a pipeline 750 miles across the floor of the Mediterranean from Israel to Cyprus — which is itself roiled in a dispute with Turkey and its own Cypriot neighbors over offshore gas deposits — and then to Crete and the Greek mainland would be daunting. Unlike the shallow water pipes that run from Russia to Germany across the Baltic, depths in some parts of the Mediterranean can reach more than 6,000 feet. And the relatively modest size of the Mediterranean gas fields also makes huge upfront investments less appealing.
“The technical and commercial viability of a subsea Mediterranean pipeline is doubtful,” Mediterranean energy expert Michael Leigh noted in theFinancial Times on Dec. 5.
Despite what Israeli officials say, it’s hard to see how a new pipeline with smallish amounts of natural gas could be competitive against long-established pipelines carrying large volumes of Russian gas. And price matters, because even if parts of Europe are desperately worried about relying too much on Moscow for their energy supplies, paying to ensure an alternative is a different matter entirely.
Europe won’t actually need that much additional gas over the next 15 years or so. Modest growth in natural gas consumption between now and 2030 will likely return Europe to the consumption levels it had before the 2008-2009 global financial meltdown. That lack of explosive demand growth depresses the price that gas can fetch in Europe. So just as the prospect of seaborne, liquefied natural gas exports from the United States would do little to address the most pressing energy-security challenges in Europe, an Israeli pipeline would be a tough sell.
“The markets that have security-of-supply problems are mostly landlocked, and most of them — even if you could get additional gas supplies there — can’t afford alternative sources of gas,” said Brenda Shaffer, an expert on energy security at Georgetown University.
Europe actually already has ready-made alternatives to Russian gas — but doesn’t fully use them. Europe’s coast has plenty of capacity to import liquefied natural gas (LNG) from the Middle East, North Africa, and soon the United States. But Europe currently uses less than one-quarter of its LNG import capacity for a simple reason: because liquefied gas shipped halfway around the world costs more, as a rule, than gas shipped through a pipeline.
What’s more, customers in Asia have been willing to pay even more for LNG than those in Europe, which means that most LNG tankers head for the booming markets of Japan, South Korea, and China rather than the stagnant European market.
Shaffer says that Israeli politicians are confusing geostrategic goals with the way that the market actually works, much like the politicians in the United States who have pitched U.S. LNG as a way to rescue Europe. Israeli and American firms working the gas fields — not the Israeli government — make decisions about where and how to export the gas. “Shalom is selling a horse he doesn’t own,” she said, referring to the Israeli energy minister.
But if shipping the gas to Europe isn’t the answer for Israel, what is? Perhaps staying closer to home.
Israel’s strong economy and growing wealth have helped create a robust domestic market. Egypt, once a big gas producer and exporter but now roiled by financial woes, flat gas production, and rising domestic demand, is looking to use imports of Israeli gas to feed its own LNG export terminals (which are aimed at Europe, anyway.) And Jordan could use Israeli gas to help boost energy access and improve the local economy, helping cement political stability at the same time.
That isn’t to say that energy bonds create geopolitical harmony among acrimonious neighbors: Just ask Ukraine and Russia, or the United States and Venezuela, or Cyprus and Turkey. The prospect of natural gas deals with Israel has been politically controversial in Egypt and Jordan, even though they are the only two Arab countries with which Israel has a peace treaty.
But a place like Jordan has long been starved of reliable sources of energy. Current Jordanian demand is terribly modest, certainly compared with European demand. And Amman could find plenty of uses for a relatively cheap, relatively clean fuel to power everything from new factories to desalination plants.
“It’s like when you get into a restaurant and get hungry when you look at the menu: The minute Jordan sees steady supplies of gas for the first time, you’re going to see much higher demand there,” Shaffer said.