As Israel-Hezbollah tensions mount, Israel’s contingency plans involve the shut-in of all three of its gas projects, Leviathan, Tamar and Karish. Alternative oil and coal supplies have been lined up. But Jordan and Egypt, both highly reliant on Israeli gas, look vulnerable.

Israel’s energy sector was upended by the 7 October Hamas attack and the subsequent war in Gaza. Supplies of both gas and oil were heavily impacted with lost revenues topping $1bn (MEES, 22 March). And whilst both had returned to normal by early this year, several key energy infrastructure projects deemed vulnerable to attack remain on hold (see table).

Israel At War: Key Energy Impacts

7 OCTOBER & CONFLICT WITH HAMAS
Immediate Impact
Tamar Gas Field: 1.1bn cfd output offline for 37 days (production platform 25km from Gaza)
Israel-Egypt EMG gas pipeline offline for 37 days: Deliveries to Egypt halve to 415mn cfd for October
Crude imports: deliveries to key Ashkelon terminal collapse from 240,000 b/d for 9M23 to 47,000 b/d for Q4
Projects On Hold
Golan Heights wind project (104MW ‘Clean Wind Energy’): was originally slated for 2H24 start-up
Karish field: doubing oil capacity to 32,000 b/d: was slated for end-2023
Ashdod-Ashkelon 46km gas pipeline link to boost deliverable Egypt/EMG capacity by 200mn cfd
Bid round award: provisional Oct 2023 awards yet to be finalized with awardees hesitant to commit
BP-Adnoc deal to take key Leviathan stake via NewMed deal: ‘suspended’ in March 2024, unlikely to be revived.
Jordan cancels landmark water for power deal involving UAE state firm Masdar
POTENTIAL IMPACT OF CONFLICT WITH HEZBOLLAH
Total halt to Israel’s 2.9bn cfd gas output; halt to exports of 1bn cfd to Egypt and 250mn cfd to Jordan
Much of Israel’s 12GW gas-fired capacity ready to switch to diesel, 4.8GW coal capacity to ramp up
Haifa Port with 197,000 b/d Bazan refinery & 5.9mn barrel storage tanks in line of fire

Whilst conflict in Gaza continues, Israeli officials led by Prime Minister Netanyahu have turned their attention to the threat from Hezbollah in Lebanon. “We are prepared for very strong action in the north. One way or another we will restore security to the north,” Israel’s PM said last month.

But if “eliminating Hamas” has proved difficult, then Hezbollah, with its symbiotic relationship with Iran’s Revolutionary Guards, will prove a far more formidable foe. Since 7 October Iran has largely limited its support for Hamas to rhetoric; this will surely not be the case if Israel attacks the lynchpin of Tehran’s ‘forward defense’ regional strategy. “Should [Israel] embark on full-scale military aggression, an obliterating war will ensue,” Iran says.

In Israel’s favor is that, with Hezbollah clearly looking to avoid all-out war, it will control the timing of any conflict. And a key element of preparation means ensuring Israel’s energy sector is resilient to anything Hezbollah (or Iran) can throw at it.

GAS OUTPUT HALT…

As part of this, MEES understands that Israel plans to take all three of its producing gas fields – 1.2bn cfd Leviathan, 1.1bn cfd Tamar and 600mn cfd Karish – offline as a precautionary measure during at least the first phase of any conflict.

As such, a key element of Israel’s war planning is preparing to switch out gas for coal and diesel in power generation. Despite gas’ dominant 70.8% of generation for 2023, officials are confident this can be achieved.

“If gas production is stopped due to the war then all of the country’s generation units that are currently using gas will be switched to diesel,” former Senior IEC official Oren Helman tells MEES.

Energy minister Eli Cohen adds that “over the years, and especially since 7 October, dozens of discussions [on energy sector resilience in face of war] have taken place. The scenario of a blackout lasting over 48 hours is very unlikely.”

…WOULD LEAVE JORDAN & EGYPT EXPOSED

As such, though Israel was reliant on some 13bcm (1.26bn cfd) of domestically produced gas to provide 71% of its 2023 power supply, its extensive fuel-switching contingency planning means it may be less exposed to a halt in production than neighboring Egypt, and especially Jordan.

Though Jordan has made major strides in advancing renewables capacity in recent years, it is still reliant on fossil fuels for 80% of power generation, of which almost all is gas. For 2023, some 4% of this came from the domestic Risha field on the border with Iraq, but 96% was imported – and save two LNG cargoes all of this came from Israel (see chart).

Imports by Jordanian state power firm Nepco of 2.68bcm (259mn cfd) of Leviathan gas for 2023 accounted for 89% of the country’s total power-sector gas consumption of 291mn cfd and just under 72% of the country’s overall power supply.

Were these supplies to halt, then Jordan’s key alternative is to increase LNG imports via its 750mn cfd Energos Eskimo FSRU at Aqaba on the Gulf of Suez. Indeed, data intelligence firm Kpler indicates that having imported zero cargoes at Aqaba for the first six months of 2024 (though Egypt imported four cargoes via the terminal in Q2: MEES, 5 July), Nepco is set to unload two cargoes totaling 140,000 tons during July alone.

Though it should be logistically possible to supply the country’s gas-fired power capacity from Aqaba, cash-strapped Jordan will struggle to pull together the finances to replace Israeli gas with imported LNG which is likely to cost around twice the $6/mn BTU that Nepco pays for Leviathan gas. Nepco is mired in debt. The IMF’s latest Jordan report, issued earlier this month, estimates that Nepco’s debts will hit $6.1bn, the equivalent of 11.5% of Jordan’s GDP, as of end-2024.

Other options include firing up the $2.1bn 470MW power plant which was completed in 2020 to burn domestically produced oil shale but has since been mothballed with Nepco in dispute with Chinese-led developer Attarat Power over what it says are exorbitant power costs. The plant had been slated to meet 15-20% of Jordan’s power needs (MEES, 29 January 2021).

Egypt, for its part, has become increasingly dependent on gas imports from Israel in recent months amid slumping domestic output (MEES, 12 July). Imports from Israel hit a quarterly record 1.03bn cfd for Q1, up again from 2023’s annual record of 834mn cfd, though they dipped to 976mn cfd for Q2 (MEES, 19 July).

The Q1 volumes equate to more than a quarter of Egypt’s overall power supply, and a third of that of gas, the key fuel.

And Egypt has already had a key demonstration of its vulnerability to slumps in Israeli supplies – slumps that, needless to say, were much more modest than the total rupture that an Israel-Hezbollah war could entail.

The key energy impact of Hamas’ 7 October assault on Israel and the subsequent war was a 37-day halt to output from Israel’s 1.1bn cfd Tamar field, whose production platform lies just 25km north of Gaza, as well as to deliveries to Egypt via the 600mn cfd offshore EMG pipeline which skirts Gaza waters. Israel-Egypt gas deliveries slumped to just 350mn cfd from 800-900mn cfd pre-conflict, though by December they had rebounded to 1bn cfd (MEES, 17 November.

Much more recently, a dip in Israeli deliveries to 860mn cfd for June amid relatively-short outages at Tamar and Leviathan saw large parts of Egypt plunged into darkness and fertilizer plants shuttered (MEES, 28 June). Clearly, a complete halt to deliveries would have a far greater impact.

Egypt’s key response to its growing gas shortfall has been to lease its own FSRU, with the 750mn cfd-capacity Hoegh Galleon arriving at the Red Sea port of Ain Sukhna last month and Egypt awarding a tender to import 21 LNG cargoes over Q3 (MEES, 21 June), of which five have already arrived.

Egypt’s new oil minister Karim Badawi and PM Mostafa Madbouly have both pledged to put an end to the country’s two hours per day of rolling blackouts by the end of July.

Mr Badawi this week said that state gas firm EGAS is examining the possibility of leasing a second FSRU or potentially switching its two LNG export terminals at Idku and Damietta to import – likely with one eye on the potential cut-off of supplies from Israel (MEES, 19 July).

Egypt’s other option is to ramp up burning of fuel oil in place of gas in power plants. Cairo last month earmarked $180mn to import fuel oil to be used to burn for power (MEES, 28 June). Though fuel oil consumption of 77,000 b/d for April-May, according to the latest Jodi stats, was up only modestly on year-ago levels, Kpler data show imports of fuel oil and other dirty products surging to a monthly record of 193,000 b/d for June.

But of course, such options come at a cost to Egypt’s stretched finances (MEES, 19 July). Like Jordan, Egyptian importers typically pay $6-7/mn BTU for Israel gas (prices vary with Brent crude, but not by much), around half the prices that Egypt is reported to have had to pay to secure LNG supplies via its recent tender – with Egypt’s request for deferred payment terms adding to the cost.

THE DEPENDENCE THAT DARE NOT SPEAK ITS NAME

It is worth noting that, as far as MEES is aware, no Egyptian or Jordanian official has made any reference, even obliquely, to the potential for imports from Israel to be halted.

During last month’s outages Egyptian officials obliquely referred to a halt in deliveries from “a gas field in a neighboring country,” without ever mentioning Israel by name.

Jordanian officials have also been unwilling to mention their country’s reliance on Israeli gas: Nepco’s latest annual report says Jordan’s mid-term strategy is to “reduce reliance on imported fossil fuels for electricity generation,” but makes no mention of what the key fuel is or where it comes from.

A reluctance to even openly acknowledge a dependence on Israel is unlikely to help foster joined-up strategic thinking when such supplies are under threat.

That said, Israeli officials are sensitive to the potential geopolitical implications of any halt in deliveries to Egypt in particular. Energy ministry director-general Yossi Dayan has asked to be personally informed about any potential field outage that could affect exports, MEES understands.

ISRAEL READIES SWITCH TO COAL AND DIESEL

In contrast, Israel has readied plans to fully fire up two giant coal-fired plants totaling 4.84GW – Rotenberg (2.25GW) in Ashkelon, and Orot Rabin (2.59GW) at Hadera (see map) – which amid the country’s switch to gas have in part been kept in reserve for contingencies such as this (MEES, 19 July).

“We are no longer dependent on just two power stations in Ashkelon and Hadera,” Mr Cohen says in reference to the two giant coal-fired plants, “there are dozens of power stations across the country [we can use]. We have stocked up on coal and diesel. We have deployed hundreds of generators nationwide.” Mr Helman forecasts that switching from gas to diesel as a power fuel will cost the state an extra $4-5bn per month.

He also concurs that Israel will be able to keep the lights on during a first phase of conflict with Hezbollah, though should fighting widen to include Iran, and/or perhaps its allied militias in Iraq then all bets are off.

“If Hezbollah starts to target power plants and other strategic energy infrastructure that could potentially damage the grid this will of course impact Israel’s ability to supply its customers and will inevitably lead to power cuts,” he tells MEES. “If there is damage and supply is cut then the government will need to prioritize where it supplies electricity and it could eventually result in several hours of blackouts,” he warns.

IEC’s most recent annual report says that as of end-2023 Israel had five weeks-worth of coal stocks if its plants are operating at full capacity. Stocks have likely risen since, though recent cargoes will not have come from former top supplier Colombia whose leftist government said it was halting shipments to Israel in response to the war in Gaza.

Israel has also been stockpiling diesel which can be burned as an alternate fuel in the bulk of its 12GW of gas-fired capacity. MEES understands that much of this may have gone undetected by ship tracking firms with the Israeli army (IDF) now routinely spoofing GPS signals, including those of tankers, to make it appear that they are at Beirut airport. The aim is to reduce the ability of Hezbollah or other adversaries to target vessels supplying Israel – Yemen’s Houthis have long made such a threat.

KEEPING OIL FLOWING…

Whilst Israel can and does import diesel and other oil products for both civilian and military use, in normal times the country’s 230,000 b/d of oil product demand is mostly met by its two refineries, the 197,000 b/d Bazan (ORL) plant in Haifa and the 100,000 b/d Ashdod plant just 20km north of Gaza.

Of Israel’s 2022 crude imports, some 85% came via the Ashkelon terminal which lies just 5km north of the Gaza Strip. But the use of the terminal was near-halted in the immediate aftermath of Hamas’ incursion. Deliveries switched to Eilat on the Red Sea for two months and Ashdod 20km north of Ashkelon, but mostly to Haifa 150km to the north and well out of the range of Hamas rockets (see map & MEES, 29 March).

The episode illustrates both Israel’s potential vulnerability but also the contingency plans it has in place. Of course, Hezbollah represents a different threat, both in terms of military capability and in terms of geography: in case of a war with Hezbollah it is Haifa and its Bazan refinery just 32km south of the Lebanese border that will be most vulnerable to attack.

…BY ANY MEANS NECESSARY

As tensions have increased in recent months, MEES understands that some of ORL’s legacy suppliers (or their insurers) have opted away from oil deliveries at Haifa due to the terminal’s proximity to Lebanon. Trafigura vessels continue to supply Israel, so the reluctance may be coming from other key Israeli suppliers including Vitol, Switzerland’s Petraco, or more risk averse majors like BP and Shell.

To cope with supply shortages, ORL has chartered multiple vessels to lift refinery feedstock (crude and vacuum gasoil) from producers directly. The time-chartered vessels have also performed ship-to-ship (STS) loadings in nearby Cyprus, then heading to Haifa.

Israel’s spoofing of tankers’ AIS signals means that Kpler recorded just three tankers ostensibly unloading a 10-year low 86,000 b/d at Israeli ports in June: two cargoes of Azeri Light and one of Kazakh CPC blend, all three at Ashkelon. As for Haifa, Kpler shows just 34,000 b/d unloading over 1H 2024 with zero for both May and June, the true figure is certain to have been far higher.

Eilat on the Red Sea is substantially less exposed to potential attack than Haifa or Ashkelon. Eilat is connected to Ashkelon by the EAPC crude pipeline that was built in the 1970s to import Iranian crude, as well as a parallel products pipeline. Though environmental regulations mean that tankers are banned from offloading at the port it was nevertheless pressed into service in the aftermath of the 7 October attack and would surely be used again if needed.

Another potential target for Hezbollah is the oil storage facilities at these ports: 12.9mn barrels at Ashkelon, 8.5mn barrels at Eilat and 5.9mn barrels at Haifa.

GAS SHUT-IN PLANS

Whilst Tamar with its platform 25km north of Gaza was most vulnerable to Hamas attack, the country’s other two fields, 1.2bn cfd Leviathan, like Tamar operated by US major Chevron, and the 600mn cfd Karish field of Greek firm Energean, are more vulnerable to attack from the north.

Leviathan’s near-shore production platform and onshore facilities at Dor are around 60km south of the Lebanese border, whilst the Karish field’s Energean Power FPSO is 80km west of southern Lebanon. Hezbollah previously threatened the vessel in 2022 when it had just arrived in Israeli waters amid heightened tension over the Lebanon-Israel maritime border, sending three unarmed drones which Israel shot down (MEES, 8 July 2022).

PROJECTS HALTED

Longer than the list of shut-ins is the list of projects which were placed on hold following 7 October, and for the most part remain on hold.

Although Karish continues to operate (albeit with some issues), operator Energean has suffered expansion setbacks linked to the Gaza conflict. Work to double the FPSO’s oil output capacity from 16,000 b/d to 32,000 b/d through the installation of a second oil train has had to wait until the conflict subsides despite the infrastructure being complete and awaiting shipment (MEES, 24 May).

Work has also been halted on the construction of a 46km stretch of offshore pipeline linking Ashkelon and Ashdod that should help bypass bottlenecks within Israel’s southern gas network and allow the increase in exports via the EMG pipeline from 600mn cfd currently to around 800mn cfd. 45.34% Leviathan partner NewMed Energy estimates that work will be completed by Q2 next year (MEES, 31 May), though this is predicated on work resuming in Q4 this year.

And it’s not only oil and gas that has felt the fallout, with renewable energy projects also impacted. Work has been halted on the 104MW Clean Wind Energy project located in the far north of the Golan Heights on the border with Hezbollah-controlled southern Lebanon (MEES, 15 March). Operator Energix of Israel, which said that even before 7 October protests by local Druze had held up work, now says that if and when work restarts it will take 12 months to complete the project (MEES, 31 May).

Energix’s compatriot Enlight already has two wind projects with combined 316MW capacity operational on the Golan Heights and could also provide a relatively easy target for Hezbollah.

The war also saw Jordan can a groundbreaking water for power deal that would have included the UAE and Israel following the latter’s continued offensive in Gaza (MEES, 24 November 2023).

In addition, provisional bid round awards, made to firms including Italy’s Eni, UK major BP and Azeri state firm Socar on 29 October last year as Israel sought to convey a ‘business as normal’ image (MEES, 3 November 2023) have yet to be finalized. This may be linked to the firms’ desire to avoid a potential consumer backlash from investing in Israel amid ongoing conflict in Gaza – February’s International Energy Week in London saw the stage invaded by protestors at BP’s supposed role in financing “genocide in Gaza” by investing offshore Israel, despite the fact that it has yet to make any investment.

Fear of geopolitical pushback is likewise a key reason that Adnoc and BP’s planned joint purchase of 50% of NewMed and with it a stake in the key Leviathan field, has been “suspended,” perhaps terminally (MEES, 15 March).

MEES – by Peter Stevenson