Exxon In Israel

Floating liquefied natural gas plant. Shutterstock
Floating liquefied natural gas plant. Shutterstock

Bloomberg recently reported on talks that are underway between Exxon Mobil and Israel on using a Floating LNG platform (FLNG) to extract and liquefy the considerable reserves of natural gas in Israeli waters.

This option, of floating LNG, is an innovative solution to the supply chain challenges that exist in getting Israel’s gas to market, as it does not require building expensive infrastructure to export its gas, especially as Israel doesn’t have a huge amount of gas by world standards.

The only options Israel currently has to export would be a massive pipeline under the Mediterranean, which would be both extremely difficulty to engineer and costly, estimated at 5 years and $7 billion dollars to construct (before mistakes and budget blowouts). The amount of gas going through the pipeline is not enough to justify such a large and permanent investment, and it is unlikely that the gas would even be competitive on European mainland at the time when vast new resources from Russia’s new pipeline, Nord Stream II, will already be available in Europe.

Any talk of geopolitical strategy in ‘weaning’ Europe off Russian gas, or getting Europe to ‘rely’ more on Israel in order to supply its energy is overblown, when you consider Israeli quantities of gas against those of energy giants Russia and Norway which currently supply Europe. To illustrate, at the rate that the pipeline could pump to Europe it would only provide around 2.4% of European gas imports at 2018 levels, whilst Russia was at 38.8% and Norway at 27%.

At 10 bcm per annum, Israel’s exports to the EU would be the same a ‘Other’, at 2.4%

There is also talks of Egypt and Cyprus going it alone and building their own infrastructure to Europe which suits their locations and interests, as they should – Cyprus is much closer to Europe, and Egypt has much more gas than Israel.

What remains is the smaller option of supplying regional partners, Egypt, Jordan and PA with gas, which requires a much smaller investment in infrastructure. Indeed, several deals of relatively small quantities, have been signed with these countries. However, the nature of these partners is that first of all Egypt, once it can develop its own gas field, will not need Israel, and the other parties are not big enough markets, or reliable partners.

Israel now needs to look at new ways to monetize its resources, through further, more expensive markets in Asia, which rely heavily on Liquefied Natural Gas. In order to liquefy the gas however, it would need to build its own liquefaction plants which leads to environmental concerns, or to use Egypt’s idle LNG plant in Idku. However, accessing Egypt’s plants require an infrastructure investment to get the gas there, as well as paying royalties and significant dependence on Egypt. Also, once Egypt is producing its own considerable Zohr gas field, it may no longer have that idle capacity for Israel to use.

A floating LNG platform (FLNG) provided by Exxon can be the solution, as an agile method of commercializing Israel’s gas without building expensive infrastructure, paying tariffs to other countries or relying of other countries cooperation. Israel can do it alone, and sell its gas around the world. An example for this is the FLNG platform Prelude operated by Shell, currently commissioned in waters off Western Australia, where pipelines and LNG plants are not viable.

It’s also worth noting that for Exxon as well, it makes sense to bring an FLNG to the East Med, because the nature of the gas fields is that there are pockets all over the place instead of one massive field, so an agile method of extraction makes the most sense, instead of building undersea pipelines all over the place.

Israeli ministers, in their quest for political achievements are looking to use Israel’s new-found wealth as a chip in a grand game of winning friends in Europe, Eastern Mediterranean and in the Middle East. However those political thoughts shouldn’t come in the way of the commercial argument to sensibly monetize these resources, in the most practical way.

About the Author
Ber Cowen is a Business Analyst with a leading multinational retailer in Melbourne Australia, and has a Master of Business (Supply Chain) from Monash University.
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