Even with higher output from the Karish field, the closure of the Tamar field and EMG pipeline will probably cut exports, writes Antonio Peciccia
The production ramp-up from the Karish field is easing Israel's supply balance, but the country may be unable to meet its export obligations in full as long as the 285bn m³ Tamar field and the 5bn-9bn m³/yr EMG pipeline remain shut.
The Karish field started production in late 2022 and yielded only about 300mn m³ last year, but its output has increased steadily so far this year and the field is now running at an annualised production rate of 6bn m³/yr, according to Mediterranean-focused independent producer Energean, which operates it. In April this year, the firm started deliveries under long-term contracts with a number of Israeli customers, most of which previously bought gas from the Chevron-operated 620bn m³ Leviathan field, Energean told Argus. This enabled a greater share of Leviathan output to be exported to Egypt.
Israeli gas contracts include a clause that allows producers, if the government requests it, to divert supplies to the country's strategic needs without having to compensate buyers for the shortfall. It is unclear whether any such request has been made so far, but after production from Tamar was shut on 9 October, a greater share of Leviathan output may be needed to meet domestic demand. Gas consumption in Israel rose to 12.8bn m³ last year, up from 12.3bn m³ a year earlier and 11.8bn m³ in 2020. Even assuming a similar increase to approximately 13.3bn m³ this year, combined production from Leviathan and Karish would be sufficient to meet Israel's domestic demand in full and leave some surplus for exports, but not enough to fully honour the country's export obligations.
Chevron and its partners have a long-term contract with Jordan's state-owned utility Nepco for 3.1bn m³/yr, which includes a minimum take-or-pay obligation equivalent to 75pc of the contractual volume. Exports to Jordan remained stable at 2.7bn m³ in 2021 and 2022, and were on course to hold about a similar level this year, with deliveries totalling 1.3bn m³ in the first half of 2023, according to Israeli firm NewMed Energy, the majority shareholder in Leviathan. But in July this year, Leviathan partners also agreed to temporarily increase firm supplies to Jordan in some months in 2023-24, without raising the overall contractual volume of 45bn m³. The firm expected Jordan's overall gas consumption to rebound to 3.8bn m³ this year after falling slightly to 3.5bn m³ in 2022.
Leviathan partners also hold a long-term contract with Egyptian firm Blue Ocean Energy, formerly Dolphinus Holdings, which reached its full contractual volume of 4.7bn m³/yr in July 2022, up from 3.6bn m³/yr previously. A separate contract with Tamar partners was slated to increase to 2bn m³/yr from 1bn m³/yr at the same time, but this was pushed back to this year, pending the completion of the Ashdod-Ashkelon link in the Israeli gas grid, which is set to raise the EMG capacity from Israel to Egypt to about 6.7bn m³/yr. The link has suffered delays and is not expected to be operational before April 2024.
And in February last year, Israel committed to additional supplies of 2.5bn-3bn m³/yr, potentially rising to 4bn m³/yr "in the coming years", the Israeli energy ministry said at the time. The additional volumes were set to reach Egypt through the same 10bn m³/yr Fajr pipeline — a section of the Arab Gas Pipeline that runs through Jordan — currently being used for all the gas exported by Israel. But NewMed Energy estimates that only up to 3.5bn m³/yr could reach Egypt through this route at present.
How short?
The Tamar outage halted a steady ramp-up in pipeline flows to Egypt, which had become crucial to maintain LNG exports as upstream production kept falling.
The latest figures made available by the Joint Organisations Data Initiative (Jodi) show that Egypt received 6.27bn m³ of Israeli gas last year, up from 4.22bn m³ a year earlier, and flows were on course to rise much more this year, having already totalled just shy of 6bn m³ in January-August. On an annualised basis, this would equate to nearly 9bn m³/yr, a volume broadly consistent with the full contractual volume under the deal with Blue Ocean Energy and the additional supplies agreed in February last year. But so far, Leviathan partners were able to book interruptible capacity only in Jordan, meaning they were not yet able to guarantee firm deliveries in line with the full contractual volume.
While the vast majority of Egyptian imports came from Leviathan, Tamar was also supplying increasing volumes. From Leviathan, Egypt received 3.1bn m³ in the first six months of this year, on course to step up further from the 4.9bn m³ received in the whole of 2022 and the 3.4bn m³ imported in 2021. This implies that deliveries from Tamar to Egypt rose sharply this year — at about 1.5bn m³ in January-June, they had already exceeded the 1.4bn m³ it supplied in the whole of 2022, which in turn was also up sharply from 817mn m³ a year earlier.
Assessing the extent of the potential shortfall in exports is complicated by the limited availability of data on demand in Israel and Jordan. But even assuming Israel's consumption is in line with a year earlier and Jordan's receipts also hold stable, Israel would be able to send only about 2.6bn m³/yr to Egypt as long as Tamar remains shut — about 3.7bn m³/yr, or 10.1mn m³/d, less than in 2022. This would be roughly equivalent to three-and-a-half standard-sized LNG cargoes per month, either in reduced LNG exports from Egypt or additional LNG demand from Jordan. But gas consumption across the region is typically lower during the winter when cooling demand fades, which may leave slightly more Israeli supply available for exports.
For Egypt, the steady supply of Israeli gas has become crucial to maintain LNG exports. The country's upstream output fell sharply to 40.5bn m³ in January-August, Jodi data show, from 45bn m³ a year earlier and 46.9bn m³ in the same period in 2021. Even with the increased imports from Israel, its supply surplus had already shrunk — LNG exports had to halt completely in May-September this year. Loadings resumed this month as expected, but the 7.2mn t/yr Idku subsequently appeared to cancel two scheduled loadings.
How long?
The extent of any shortfall in regional supply hinges on how long the Tamar outage and redirection of flows through Jordan last. The field's production platform is located near Ashkelon, very close to the Gaza strip, and the EMG pipeline actually runs through the Gaza marine area, which makes it unlikely that either of the two could resume while military operations in the area are ongoing.
Israel's supply balance may improve by the end of this year once Energean brings on line its 34bn m³ Karish North field, which it expects to further bolster capacity at its floating production, storage and offloading unit to 8bn m³/yr. Besides this, a Leviathan production capacity increase to 14bn m³/yr and Energean's 68bn m³ Katlan field — which has yet to reach a final investment decision, although it is expected by the end of this year — are still years away.
But while the EMG line remains unavailable, any further output increase may also run into capacity constraints on the Jordanian transmission system. Leviathan partners are investing in an additional compressor station that would raise transmission capacity to Egypt to 10.5bn m³/yr from 6.5bn m³/yr, but the timeline of the project is unclear. And a new pipeline between Jordan and Egypt — the Nitzana link, which is expected to boost overall export capacity by 3bn-6bn m³/yr — is still in the designing stage.
