Israel and Jordan Sign Gas Deal

Israel and Jordan signed a deal on February 19 in which Israel will supply Jordan with $500 million in natural gas over a 15-year period. The deal could be merely the first step, however, in a partnership that could potentially expand to an astonishing $30 billion. The gas will come from Israel’s Tamar natural gas field offshore in the Mediterranean and deliveries are expected to begin in 2016.

The gas will be sent to Arab Potash, a Jordanian fertilizer company. Jordan has few indigenous energy sources, relying on neighbors to fuel its economy. For Jordan, the deal with Israel will make up for the shortfall of lost energy supplies that it imported from Egypt, which have been disrupted because of political turmoil and violence.

Israel too has long been vulnerable due to a lack of energy resources of its own. For this reason, the discovery and the ultimate extraction of natural gas from the Mediterranean has not only been about economics, but security as well.

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Noble Energy, based in Texas, owns 36% of the Tamar field. Its other partners include Israel’s Delek Group. Lawson Freeman, Noble’s Eastern Mediterranean vice president commented on the significance of the agreement, “this deal will pave the way for additional export projects which could enhance regional cooperation as well as provide additional supply to the domestic market and enhanced security of supply through development of additional reservoirs and infrastructure.”

Extraction of the Tamar field, which holds an estimated 8.5 trillion cubic feet of natural gas, began in March 2013. There is also the Leviathan field west of Haifa, a field that holds nearly twice the amount of natural gas reserves as Tamar, and Israel expects it will begin supplying gas in 2016.

The deal includes a floor price of $6.50 per thousand cubic feet, with an upside linked to the price of Brent crude. The talks had been nearly completed but held up for months as the two sides haggled over pricing details.

Israel and Turkey are also exploring potential gas deals as well, according to the Times of Israel.

By Charles Kennedy of Oilprice.com