Israel-Jordan gas trade portends brighter future in Middle East
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The Israeli press recently reported that Israel started supplying gas to its neighbor Jordan in January. While the current trade is small, Israel and Jordan have signed an additional contract for larger gas supplies, and this trade could eventually be expanded to other countries in the region.

This moderate start could have far-reaching positive consequences for the region, and it reflects the new state of relations in the Middle East, where many Arab-majority states are now openly cooperating and trading with Israel. 

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The gas supplies from Israel to Jordan are modest in the first stage, but they set an important precedent. The companies operating in Israel’s offshore Tamar field (the main partners are the U.S. company Noble Energy and the Israeli company Delek Energy) began exporting gas in January to two Jordanian factories operating in the Dead Sea area of Jordan.

 

While the volumes are currently small (approximately a quarter billion cubic meters or 8.8 billion cubic feet per year), gas trade between Israel and Jordan will expand through an additional contract from Israel’s massive Leviathan field to Jordan’s national power company (NEPCO). This contract is for 3.5 billion cubic meters (or 123.6 billion cubic feet) a year, for fifteen years, and is slated to begin in 2019.

This gas will enter Jordan through the north and connect to its gas grid, whereby it can reach multiple power plants throughout the country. Jordan’s gas grid is linked to grids in Egypt and Syria and Syria is connected to Lebanon. So, this infrastructure could eventually be used to supply gas to additional countries in the region, though, at this point, the idea remains theoretical.

The contract from Leviathan was significant enough to trigger a Final Investment Decision (FID) sanctioning the development of the first stage of the Leviathan field. Despite the current cash-strapped environment of most oil companies, the sanctioning of Leviathan makes commercial sense. Noble Energy and Delek Energy are able to take advantage of the current low steel prices and the relatively low costs of service companies.

Thus, construction costs will be lower than when the oil price heads back up. In addition, the companies committed to the Israeli government to begin developing the field by the end of 2017. Noble and Delek aim to begin gas exports to Egypt this year and, perhaps, even secure an export contract to Turkey.

In the near future, it is likely that the scope of the gas supplies from Israel to Jordan will grow substantially. It is quite common that once gas supplies are available to a state, consumption grows, especially in a place like Jordan, where the gas will be supplanting oil and higher-priced imports of liquefied natural gas (LNG).

The new gas supplies are especially important for Jordan, which has been struggling to provide basic services to over a million refugees from Syria and Iraq. With a population of only eight million, Jordan is host to, proportionally, one of the world’s largest refugee populations.

Jordan produces part of its electricity from oil. Replacing oil with natural gas will allow it to save hundreds of millions of dollars annually in energy production and greatly reduce pollution. Moreover, Israel’s natural gas discoveries enables an increase in the volumes of water that Israel produces by desalination and, thus, the amount it diverts to Jordan, which helps to meet the needs of the refugees.

Jordan is a vitally important country in the Middle East, with a strong pro-U.S. orientation and a formal peace treaty with Israel. It is notable that the Jordanian leadership agreed to the gas trade with Israel, despite opposition from the country’s Muslim Brotherhood and other influential political groups.

By allowing the gas trade with Israel, Amman has also shown that it prioritizes the prosperity of its citizens and refugees over the ideological tenet of boycotting Israel. The U.S. Department of State’s Bureau of Energy Resources also played a positive role in facilitating the gas trade from Israel to Jordan and should be commended.

The gas supply reflects a new reality in the Middle East — several important Arab states are now more open to cooperation with Israel. This is especially evident among the states in the Gulf.

This new reality in the Middle East shows that the efforts to isolate Israel from international trade are failing. It also should signal to Israel that it is not only surrounded by enemies and that it could perhaps risk peace with the Palestinians.

 

Prof. Brenda Shaffer is an international energy expert, specializing in the impact of gas trade on foreign relations and on the Caspian and East Mediterranean regions. She is the author of several books including, "Energy Politics," and is the author of a recently published study in Energy Law Journal of Israel’s gas sector and the lessons for regulation of small gas markets. 


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