Israel’s Energy Ministry mulls construction of LNG facility

Israel’s Minister of Energy and Infrastructures Eli Cohen has instructed an examination to be conducted of the options for building a floating liquefied natural gas (FLNG) facility in Israel’s economic waters, sources close to the matter have told “Globes.” On the agenda is also a possible land LNG terminal but pollution factors for the coastal population raise doubts about the feasibility of such a plan.

Israel currently uses three pipelines for exports: EMG to Egypt, which has an annual capacity of 5.5 billion cubic meters (BCM), the North Jordan pipeline, which has an annual capacity of 7 BCM, and which serves exports to both Jordan and onto Egypt, and the South Jordan pipeline, with an annual capacity of 1 BCM, which serves the Dead Sea Works in Jordan. In the next three years the Hovev-Nitzana pipeline is expected to come on-stream conveying 6 BCM annually to Egypt.

The aim in setting up an FLNG or land LNG facility is to disperse risk from Israel’s perspective, with such a significant amount of gas exports dependent on Egypt, both as a direct consumer and for liquefaction in the two Egyptian LNGs in Idku and Damietta. An LNG allows natural gas produced to be stored on ships for export to anywhere in the world. The volume of LNG is 600 times smaller than natural gas.

The first players to raise the possibility of an LNG facility are the Leviathan partners NewMed Energy (TASE: NWMD) (45.33%), Chevron (39.66%) and Rastio Energies (TASE: RATI) (15%). At present Leviathan’s annual production capacity is 12 BCM with plans to raise it to 14 BCM next year by laying a third pipeline from the gas field to the platform at an investment of $570 million. In the long term, NewMed Energy has a $3 billion plan to increase production to 21-23 BCM annually through two additional drillings down to the gas field and laying a fourth pipeline and other modules to handle the natural gas on the platform.

A new gas export route required

For such an investment, the Leviathan partners want first of all to see the Ministry of Energy and Infrastructure Petroleum Commissioner approve a production and export plan that would ensure a return on the investment. Such a plan could include both expansion of use of the Egyptian facilities and a stand-alone LNG facility in Israel. In 2023, Egypt used about 4 million tons out of a potential 20 million tons capacity at Damietta and Idko. On the one hand, this allows for expansion of the size of exports based on existing Egyptian facilities. On the other hand, it does not spread risks, especially in such a problematic economic period for the El-Sisi regime that could develop in all sorts of directions.

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As a result, the perception is increasing that an additional export route is required that does not pass through either Egypt or Jordan, and which could be obtained, for example, through an LNG facility in Israel. The main issue concerning an FLNG is the significant increase costs over the past two years of building such facilities. Construction costs in the various shipyards that deal with FLNGs during the Covid pandemic was about $750 million for an infrastructure that can produce one million tons of liquefied gas per year. Prices have now doubled to about $1.5 billion dollars. Those taking advantage of demand to set such prices are, mainly South Korean shipyards such as Samsung and Hyundai.

Worldwide there are currently five active FLNG projects: in Australia, owned by Shell with an annual production rate of 3.6 million tons; two in Malaysia belonging to Petronas, producing 2.7 million tons annually; in Gabon Perenco is producing 0.7 million tons; and in the Congo, Eni is producing 3 million tons. In addition to all of these, there are FLNG projects in the construction stages, including the Gulf of Mexico, and these are encouraging the price increases at the shipyards.

According to estimates, construction of an FLNG facility in Israel’s economic waters would cost $7 billion. The state is the regulator in the gas field, and does not have the authority to order private financing for projects. Due to the high costs, Cohen supports both the possibility that the Leviathan partners would build the LNG facility, or establishing a broad consortium of all the gas players in Israel, to divide the investment between them, while exploiting the economic benefits of the FLNG facility.

Minister of Energy and Infrastructures Eli Cohen told “Globes,” “Building an onshore LNG or FLNG facility will make it possible to maximize the state’s revenues from gas exports, diversify export targets, serve as an important tool in the political arena in general and vis-a-vis Europe in particular, and will contribute to the creation of jobs.” In addition, if a decision is made to further increase gas exports to Egypt, the minister is interested because the State of Israel will take part in deciding to which countries the LNG is exported from Egypt.

Published by Globes, Israel business news – en.globes.co.il – on March 28, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.