Israel shuts major offshore gas field near Gaza: Will this drive up global gas prices?

The war between Israel and the Palestinian militant group Hamas entered its fifth day Wednesday (11 October), as Israeli warplanes continued to pound the Gaza Strip. Israeli airstrikes have killed 950 people and wounded 5,000 others in the coastal enclave, CNN reported citing the Gaza ministry of health.

As per Israel’s military, over 1,200 people, including 155 soldiers, have died since Hamas militants launched a stealth attack by air, land and sea on the weekend.

Amid safety concerns, Israel on Monday ordered the shutdown of the Tamar offshore natural gas field run by American energy giant Chevron Corp. in the eastern Mediterranean.

Why is the Tamar gas field significant? Will its closure impact the global energy sector? Let’s understand.

Israel shuts major gas field

Israeli energy ministry said it is temporarily halting supplies from the Tamar gas field, located about 24 kilometers off Israel’s southern coast.

“In the wake of the situation, Israel’s defence establishment ordered the temporary suspension of natural gas supplies from the Tamar field,” the ministry said in a statement, as per Reuters.

“The economy’s energy needs will be supplied by alternative fuels. The electricity industry is preparing to use alternative fuels to power its stations,” the statement added.

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The Tamar field, which is Israel’s key natural gas source, is within range of rocket strikes from the Gaza Strip, according to Reuters.

Located about 25 kilometres off the Israeli city of Ashdod along the country’s southern Mediterranean coast, Tamar supplies account for 70 per cent of Israel’s energy demand for power generation, according to Chevron.

Tamar, Israel’s second-largest natural gas field, has about 10 trillion cubic feet (tcf) of natural gas, reported The Times of Israel.

So far, the production at Israel’s largest natural gas field, Leviathan, has not been shut. Chevron is meeting the needs of its customers in Israel and the region from the Leviathan platform.

“Chevron is focused on the safe and reliable supply of natural gas for the benefit of the Israeli domestic market and our regional customers,” Chevron spokesperson Sally Jones said in a statement, CNN reported. “Our top priority is the safety of our personnel, the communities in which we operate, the environment and our facilities.”

According to Bloomberg, the shutdown of Tamar field, about 80 kilometers west of Haifa, could impact Israel’s plans to become a major regional supplier.

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Impact on Egypt, Jordan

Israel’s Tamar and Leviathan have been meeting the energy needs of its neighbouring countries, Jordan and Egypt.

Israel started exporting natural gas from the Tamar field to Jordan in 2017. While Leviathan has been exporting gas to Egypt since 2020, Israel allowed shipments to the North African country from the Tamar platform in August this year, reported The Times of Israel.

Egypt’s imports of Israeli gas declined by 20 per cent to about 650 million cubic feet per day after the shutdown of the Tamar field, as per a Bloomberg report.

Cairo is now reconsidering its plans to restart liquefied natural gas (LNG) exports to Europe, the report added.

The North African nation produces its own natural gas and also imports, along with exporting processed LNG.

Martijn Murphy, a principal analyst at energy consultancy Wood Mackenzie, told CNN that if the closure at Tamar lasts long, it would reduce Egypt’s plans to increase LNG exports and “earn crucial hard currency”.

According to Leo Kabouche, an analyst at Energy Aspects Ltd, “Key unknown is the duration of the outage. Israeli gas is critical to feedgas availability in Egypt given the slide in domestic production there,” reported Bloomberg.

Egypt also witnessed a rise in domestic demand for gas, which has already affected its LNG exports this year, as per CNN.

Jordan, which imports 7 per cent of its total gas supply from Tamar, could bear the brunt if the suspension is drawn out.

Wood Mackenzie’s Murphy said that while Leviathan makes up for most of Jordan’s total gas supply, a prolonged closure at Tamar “could force Israel to divert Jordan-bound gas produced at Leviathan to its domestic market”, reported CNN.

ALSO READ: Gaza has one exit route and Israel is bombing it. Where do its people go?

Europe

Futures prices on Europe’s benchmark gas exchange — Dutch Title Transfer Facility —  climbed 12 per cent Tuesday to about €49 (over Rs 4,000) per megawatt hour.

Analysts at Goldman Sachs believe the Tamar closure has “contributed” to the hike in European gas prices, as per the CNN report. “Going forward, should the ongoing events evolve into a more sustained tightening of global LNG balances, this will reduce Europe’s gas markets’ ability to handle other unforeseen events, such as cold weather spikes, or other supply disruptions,” they said in a note.

The demand for natural gas ramps up in countries in the northern hemisphere during winter months.

According to Simone Tagliapietra, a senior fellow at the Bruegel think tank, two factors are behind increasing European gas prices — a temporary closure of a gas pipeline in the Baltic Sea and the planned strikes by LNG) workers in Australia, reported CNN. 

He added that a prolonged closure at Tamar is likely to drive up European gas prices, “as it could force Israel to procure gas from the global market, fueling competition for exports.”

But, the shutdown’s impact on the global gas market would be “very limited" as Israel is not a major supplier, Tagliapietra told CNN. 

With inputs from agencies