Bottom Line: Russia’s announcement this week that a Gazprom subsidiary had signed a deal for Israel’s offshore Tamar gas field will exponentially strengthen Gazprom’s prowess in the massive Asian LNG market. (Israel has yet to approve the deal, but it will—it’s needs the money for infrastructure and it needs the deal for a new geopolitical landscape).
Analysis: What Russia has right now is a single LNG plant in its Far East (Sakhalin-2), supplying LNG to South Korea and India (though it plans to build another plant in Vladivostok). With the Israel deal, it will gain direct export access to Japan, South Korea, China and India.
The deal Russia signed on Tuesday will see Gazprom provide financial support for the development of the Tamar Floating LNG Project, which should begin construction in 2017. The deal also gives Gazprom exclusive rights to purchase and export Tamar LNG. The Tamar gas field is the second major gas field in Israel (after Leviathan), both off the coast of the port city of Haifa. Tamar has an estimated 270 billion cubic meters of gas. The floating LNG project would liquefy gas from Tamar at a floating liquefaction vessel with a capacity of 3 million tons/year.
This is a major step for Russia in its attempt to diversify from the European market, and it is also significant that Tamar is a US-Israeli joint venture for the most part. Russia isn’t courting Israel to this extent without the US blessing—and even encouragement. Russia is also keen to avoid seeing Israel and Cyprus get too much closer in terms of energy cooperation because this would sever Russia’s hold on the European market, which it can’t let go until it diversifies. With this in mind, Russia also has its eye on the Leviathan field (450 billion cubic meters of gas) and it is heavily courting both Lebanon and Syria in the meantime, which are also privy to the Levant Basin (122 trillion cubic feet of gas and 1.7 billion barrels of oil).
So what does Israel gain? For one thing, it’s hard up for infrastructure investment ($10 billion worth for exports alone). It will also want to dangle Leviathan in front of Gazprom in return for a less amiable Russian stance on Iran (like no more weapons deals), and possibly even for help in Syria. The broader picture here is that Russia and the West are teaming up in the Mediterranean and a new geopolitical landscape—whose primary factor is hydrocarbons—is being drawn.