Leviathan Partners Ink $650 Million Natural Gas Deal to Supply Eshkol Power Plant

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In a significant development for Israel’s energy sector, partners in the Leviathan gas reservoir have finalized a $650 million deal to supply natural gas to Eshkol Power Energies, a major milestone in Israel’s path towards energy independence and market competition. This agreement underscores the strategic importance of the Leviathan gas field and its role in transforming Israel’s energy landscape.

The Deal and Its Context

The deal involves the supply of approximately 0.5 billion cubic meters of natural gas annually from the Leviathan field over a period of seven years, beginning in June 2024. The recipient, Eshkol Power Energies, recently acquired the Ashdod-based Eshkol power station from Israel Electric Corporation (IEC) for about NIS 9 billion ($2.45 billion) as part of Israel’s broader structural reform in the electricity sector initiated in 2018​.

Dalia Power Energies, a key player in this consortium, aims to enhance competition in the electricity market, thereby potentially lowering energy prices for the public. CEO Oved Debby highlighted that the agreement completes the necessary preparations for operating the Eshkol power plant, which is Israel’s largest natural gas-powered facility with a capacity of 1,680 megawatts​​.

Leviathan Gas Field: A Cornerstone of Israel’s Energy Sector

Discovered in 2010, Leviathan is one of the world’s largest deep-water natural gas fields, containing an estimated 22 trillion cubic feet of gas. It is located about 120 kilometers west of Haifa at a water depth of 1.7 kilometers. The field is operated by a consortium led by Chevron, holding a 39.66% stake, along with NewMed Energy (formerly Delek Drilling) with 45.3%, and Ratio Oil Corp with 15%​ .

Since commencing production in December 2019, Leviathan has been pivotal in Israel’s journey towards energy self-sufficiency. The field not only supplies the domestic market but also exports natural gas to neighboring countries, including Egypt and Jordan, enhancing regional energy cooperation​.

Strategic and Economic Implications

The sale of the Eshkol power station and the associated natural gas supply agreement are part of Israel’s strategic efforts to restructure its energy market. This move is designed to reduce the monopoly of the state-owned IEC, encourage private investment, and introduce competitive dynamics into the electricity sector. The reform aligns with global trends towards liberalizing energy markets to boost efficiency, innovation, and consumer benefits.

Additionally, this deal has broader geopolitical implications. It strengthens Israel’s energy ties with its neighbors and positions it as a key energy exporter in the region. The ongoing development of the Leviathan field, including plans for a floating production, storage, and offloading (FPSO) unit, aims to increase production capacity and facilitate additional exports​​.

How Israel is Preparing to Keep Lights and Water Running in Event of a Regional War

Israeli utility companies and the government have been proactive in ensuring that the country’s critical infrastructure remains operational even in the event of a regional war. With ongoing tensions in the region and the recent escalation in conflicts, officials have outlined comprehensive steps taken to safeguard electricity and water supplies under potential missile barrages and cyberattacks. However, despite these efforts, concerns about the resilience of these systems persist, particularly regarding the potential damage from falling debris of intercepted missiles.

To prepare for possible disruptions, Israeli utilities have deployed backup generators, filled water reservoirs to maximum capacity, and enhanced their cyber defenses. This preparation is seen as crucial given the likelihood of conflict involving multiple fronts, including threats from Gaza, Lebanon, and potentially other regional actors.

The Israeli Energy Minister has reassured the public that there is no need for panic concerning blackouts and energy supply disruptions. Israel has diversified its energy generation sources, including natural gas, diesel fuel, coal, and renewable energy, which provide a buffer against potential attacks on any single source. Nevertheless, the populace remains cautious, as evidenced by the increase in purchases of household generators and emergency supplies, especially after the Iranian missile and drone attack on April 13.

Despite these precautions, vulnerabilities are apparent. For instance, the offshore Tamar gas rig was temporarily shut down as a precautionary measure when the Gaza conflict began. A full-scale war with Hezbollah, which possesses a substantial arsenal of rockets and missiles, would escalate concerns about the security of the Leviathan gas field located farther north. Industry officials also acknowledge the risk of Israel’s air defenses being overwhelmed during intense conflict, potentially leading to critical infrastructure being damaged by debris from intercepted missiles.

State-owned utilities are currently operating on a war footing, stockpiling inventory, and repairing equipment damaged along the Gaza and Lebanon fronts, often under hostile conditions. The dangers faced by utility workers are significant, with four electricity workers having been killed while on duty since the conflict intensified in October.

Israel Electric Corporation (IEC) has strategically positioned generators across the country to ensure a swift response to any grid damage. According to Tamar Fekler, Vice President of Operations and Logistics at IEC, these generators can activate within seven minutes to restore power to the grid if needed. However, the distribution network, which relies on numerous substations, presents a greater challenge. Temporary substations have been prepared as backups, but the scale of potential damage from a widespread missile attack could still lead to prolonged outages in many areas.

In the event of substantial damage, power supply prioritization will be critical, with hospitals, desalination plants, military facilities, and other essential infrastructure receiving priority. This strategy aims to mitigate the impact on vital services and maintain some level of functionality during prolonged disruptions.

The potential for a broader regional conflict has been a significant concern since the start of the Gaza war, which was triggered by a devastating cross-border raid by Hamas. This attack resulted in the deaths of 1,200 people, primarily civilians, and the abduction of 253 individuals who were taken as hostages into Gaza. Israel’s military response has focused on dismantling Hamas’s capabilities, toppling its regime in Gaza, and rescuing the hostages. The ongoing conflict has resulted in substantial casualties, with the Hamas-run Gaza health ministry reporting over 34,000 deaths, a figure that includes numerous Hamas fighters according to Israeli sources.

To ensure water security, Mekorot, Israel’s national water carrier, has taken measures to fill reservoirs and establish a robust backup power system capable of maintaining water supplies for at least a week during potential rolling blackouts. Deputy CEO Daniel Soffer emphasized that the company relies heavily on desalination plants, which are energy-intensive but crucial for maintaining water availability.

The war has also seen an increase in cyberattacks against Israeli infrastructure, with Check Point Software Technologies reporting a doubling of attacks on Israeli organizations. These attacks, primarily attributed to Iranian groups and Hezbollah, aim to compromise critical infrastructure, hospitals, educational institutions, and other essential services. Gil Shwed, CEO of Check Point, highlighted the significant impact of these cyber threats, which seek to disrupt and potentially take control of key systems.

The temporary shutdown of the Tamar gas rig at the start of the Gaza war underscored the vulnerability of Israel’s energy infrastructure. The Leviathan field, a crucial source of natural gas, is also within range of Hezbollah missiles, posing a significant risk if hostilities escalate. Despite these risks, Energy Minister Eli Cohen has sought to calm public fears by emphasizing Israel’s diverse energy generation capabilities, which include multiple gas rigs, reserves of diesel fuel, coal, and a growing reliance on renewable energy sources.

In summary, Israel’s preparations to maintain electricity and water supplies in the event of a regional war involve a combination of strategic planning, infrastructure resilience, and cyber defense measures. While the country has made significant strides in ensuring the continuity of essential services, the inherent risks of widespread conflict and the potential for significant infrastructure damage remain areas of concern. The ongoing efforts to bolster these systems reflect the broader challenges faced by Israel in maintaining stability amidst a volatile regional environment.

Future Prospects and Challenges

While the deal is a significant step forward, it is part of a larger, complex landscape of energy politics and market dynamics. Israel’s energy sector will continue to face challenges, including fluctuating global energy prices, regulatory hurdles, and the need for sustainable and environmentally friendly practices. The successful integration of new gas supplies into the market will require robust infrastructure, regulatory support, and continued investment in technological innovations.

In conclusion, the $650 million natural gas deal between Leviathan partners and Eshkol Power Energies marks a transformative moment for Israel’s energy sector. It not only enhances energy security and market competition but also solidifies Israel’s position as a regional energy hub. As the country continues to navigate the complexities of energy politics and market reforms, this agreement serves as a testament to the strategic importance of the Leviathan gas field and the ongoing efforts to achieve a more diversified and competitive energy market​.


APPENDIX 1 – Surge in Israel’s Natural Gas Exports to Egypt: A Detailed Analysis

In 2023, Israel’s natural gas exports to Egypt saw a significant increase of 39% compared to the previous year, according to a report by the Israeli Ministry of Energy and Infrastructure. The report, prepared by the ministry’s Natural Gas Authority, highlighted that the export volume reached an annual record of 8.6 billion cubic meters (BCM).

Transportation and Infrastructure

Israeli natural gas is transported to Egypt through two primary routes:

  1. East Mediterranean Gas (EMG) Pipeline: A private pipeline that plays a critical role in the transportation of gas.
  2. Jordanian Transmission System: Located to the east of Israel, this system also facilitates the movement of gas to Egypt.

Key Factors for Increased Exports

Rising Demand from Egypt: The surge in demand for natural gas in Egypt is a primary driver behind the increased exports.

Karish Field Production: The commencement of natural gas production from the Karish field in October 2022, located in the eastern Mediterranean, has significantly bolstered Israel’s gas output, complementing the existing Leviathan and Tamar fields.

Total Export Volume

In 2023, Israel’s total natural gas exports, which include shipments to both Egypt and Jordan, reached 11.6 BCM, marking a 27% increase from the previous year. Notably, exports to Jordan remained relatively stable during this period.

Production Statistics

Israel’s natural gas production reached a new high of 24.7 BCM in 2023, reflecting a 12.8% increase compared to 2022. This production volume is distributed as follows:

Exports: 11.6 BCM

Local Economy Supply: 13.1 BCM (an increase of 3.5% from 2022)

Domestic Consumption

Approximately 80% of the natural gas supplied to the local economy is utilized for electricity generation. The stable supply and pricing of natural gas have been maintained despite ongoing conflicts in the Gaza Strip and the global energy crisis.

Detailed Analysis and Projections

Natural Gas Demand in Egypt

Economic Growth: Egypt’s economic growth and expanding industrial base are driving the demand for natural gas.

Energy Transition: Efforts to transition from oil to natural gas for power generation are also contributing to the increased demand.

Population Growth: A growing population necessitates more energy for residential and commercial use.

Karish Field Impact

Production Capacity: The Karish field is expected to significantly increase Israel’s natural gas production capacity, contributing to higher export volumes.

Geopolitical Stability: The field’s strategic location in the eastern Mediterranean could influence regional energy politics and trade dynamics.

Market Dynamics

Price Stability: The stability in natural gas prices in Israel can be attributed to robust production and efficient supply chains, which have mitigated the impacts of regional conflicts and global energy market fluctuations.

Supply Chain Resilience: Israel’s diversified transportation routes and infrastructure have enhanced the resilience of its natural gas supply chain.

Future Projections

Continued Growth: The upward trend in natural gas exports is likely to continue, driven by sustained demand in Egypt and potential new markets in the region.

Infrastructure Investments: Ongoing and planned investments in pipeline infrastructure will further boost export capacities and ensure reliable supply chains.

The significant increase in Israel’s natural gas exports to Egypt underscores the growing importance of natural gas in the region’s energy landscape. The robust production from fields like Karish, combined with strategic infrastructure, positions Israel as a key player in the eastern Mediterranean’s energy market. Despite geopolitical challenges, the stability in supply and pricing highlights the resilience and potential for continued growth in Israel’s natural gas sector.

References

  1. Israeli Ministry of Energy and Infrastructure, Annual Report 2023.
  2. Natural Gas Authority, Statistical Review 2023.
  3. East Mediterranean Gas (EMG) Pipeline Overview.
  4. Market Analysis Reports on Natural Gas Demand in Egypt.
  5. Energy Information Administration (EIA) Data on Global Energy Markets.

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