Israel-Hezbollah war could create gas supply crisis

Egypt is currently the largest consumer of gas from Israel

The Leviathan natural gas rig off the coast of the Mediterranean coast, in northern Israel. Reuters

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An escalation in the conflict between Israel and Hezbollah would most probably prompt Israel to shut down some or all of its major gasfields, compounding challenges for energy-starved Egypt, analysts say.

Cross-border air strikes, rocket and drone attacks between Israel and Lebanon's Hezbollah continued this week, following warnings from both sides that a far larger conflict could be looming.

Iran, Hezbollah's main ally and backer, has said that if Israel attacks Lebanon, a coalition including Syria, Yemen's Houthi rebels and Iraqi militias would join an “obliterating war” against Israel.

Last month, Hezbollah leader Hassan Nasrallah released a video threatening to strike targets in Israel, many of them energy-related.

Those threats did not deter Israel from approving a plan on June 26 to more than double the amount of gas earmarked for exports, a move that would benefit Egypt, the largest consumer of gas from Israel.

Israel currently supplies gas to Egypt using two pipelines that transport the fuel from the Leviathan and Tamar fields off its coast.

These fields collectively produce about 21 billion cubic metres of gas annually, and nearly nine billion cubic metres was exported to Egypt last year.

Stakeholders in Israel's huge offshore Leviathan gasfield revealed plans last week to invest up to $500 million to expand its capacity.

However, any extra volumes from Leviathan would take “several years” to come on-stream, Simon Henderson, director, Bernstein Programme on Gulf and Energy Policy at The Washington Institute for Near East Policy, said in an article this week.

“The proposal faces immediate challenges in the form of Hezbollah’s bristling arsenal located just to the north in Lebanon,” Mr Henderson said.

It is likely that Israel will shut down part or all of its offshore operations if the conflict with Hezbollah escalates into an all-out war, Cyril Widdershoven, analyst at Hilltower Resource Advisers, told The National.

Last year, Israel ordered a temporary shutdown of the Chevron-operated Tamar gasfield, located about 19km offshore from the Gaza Strip, following the Hamas attack on October 7. Production was restarted a month later.

During that period, around 60 per cent of Israel’s domestic natural gas demand was met by the Karish offshore gasfield, which could potentially become a target for Hezbollah, analysts said.

“If there is an organisation that can really jeopardise Israel, it is Hezbollah, not only because of the sheer number of weapons but also because of the proximity,” said Danny Citrinowicz, a researcher and a former Israeli military intelligence officer.

In July 2022, the Iran-allied group launched drones targeting Karish following disagreements between Israel and Lebanon over their maritime borders in the Eastern Mediterranean Sea. The drones were intercepted.

Later, in October, an agreement was finally reached that addressed both Israel and Lebanon's claims, allowing for gas exploration and development to proceed.

In December last year, Lebanon’s caretaker Minister of Energy and Water said the maritime border deal with Israel still stands despite the intensifying conflict between Hezbollah and Israel's military.

A representative for Energean, the operator of Karish, told The National that the company is “entirely confident” in the Israeli military's ability to protect strategic assets.

Despite Israel's active defensive capabilities, Hezbollah's extensive missile coverage and unmanned aerial vehicle capabilities pose a significant threat to the country's energy infrastructure, Mr Citrinowicz told The National.

“But also, it depends on how we see the war developing because it will be a severe escalation, if they tried to do so.”

Hezbollah, which in March was estimated by US analysts to possess between 120,000 and 200,000 rockets and missiles, could also target Israel’s power grids, possibly shutting down electricity for days.

A few weeks ago, the chief executive of Israeli utility Noga said that the country was unprepared for the lack of electricity should Hezbollah rockets hit power lines, according to local media reports.

“After 72 hours without electricity in Israel, living here will be impossible. We are not in a good state and unprepared for a real war,” Shaul Goldstein said.

Egypt’s woes

Egypt, which is currently facing a severe energy crisis and rolling power cuts, is particularly sensitive to disruptions in Israeli gas supplies.

Israel’s gas shipments to Egypt dropped by roughly 20 per cent following Tamar’s suspension last year.

More recently, a 10-day cut from May 27 to June 5 at the Tamar field caused deliveries to Egypt to be reduced by half from the usual 1 billion cubic feet per day levels.

For Egypt, any reduction in gas exports from Israel would come at a “real worst-case scenario time” as its domestic production lags behind demand, especially with the summer season beginning, Mr Widdershoven said.

Egypt reached natural gas self-sufficiency in 2018 thanks to the discovery and operation of the Zohr field off its coast, enabling Cairo to stop importing natural gas and briefly become an exporter.

However, the country began experiencing gas shortfalls in 2022, particularly due to the natural depletion of wells in the Zohr field, which contributes around 35 per cent of the country’s total gas production.

“In case of further cuts, Egypt would need to source alternative and costly gas supplies from the spot LNG market and, at the same time, revert to longer electricity cuts during the day,” said Francesco Sassi, research fellow at Ricerche Industriali Energetiche in Bologna.

Last week, Prime Minister Mostafa Madbouly said the government had allocated $1.18 billion for imports natural gas and mazut, a type of heavy fuel oil, to increase the power supply.

On Monday, Egypt received a shipment of US LNG in the first of 21 fuel deliveries intended to support the country’s strained energy sector.

The 3.5 million cubic feet of LNG, which arrived at the Ain Sokhna terminal, will be converted to natural gas within the week, Egypt’s Oil Ministry said.

Longer power cuts carry a significant risk for the Egyptian state due to their political, social and economic implications, Mr Sassi said.