MIDDLE EAST EXPANSION

Following the official launch of the Igdir-Nakhchivan gas pipeline on 5 March, which further strengthened the strategic partnership between Azerbaijan and Türkiye, the past month was marked by another significant event that will contribute to the development of Azerbaijani-Israeli relations.

Specifically, the Energy Ministry of Israel granted a licence for gas exploration in the country's Exclusive Economic Zone (EEZ) in the Mediterranean Sea to a consortium comprising the State Oil Company of Azerbaijan (SOCAR), the British BP Plc and Israel's NewMed Energy. This agreement allows SOCAR, in collaboration with BP and NewMed Energy, to undertake the search for natural gas in the area of the Israeli Mediterranean Sea shelf. This region is of significant strategic importance, situated in proximity to Israel's maritime borders with Lebanon and Cyprus, in the vicinity of the prolific Leviathan gas field.

This project has several unique aspects. Firstly, it is the inaugural venture for SOCAR and BP in the Israeli gas sector. A successful exploration could open up the possibility of entering the European market through existing infrastructure. As Europe seeks to minimise its dependence on Russian gas, Israel, like other gas-producing countries, sees the continent as a promising export destination. The involvement of two shareholders in the Southern Gas Corridor project could facilitate access to the European market for Israeli authorities, with discovered deposits potentially being delivered to Europe via this export route.

This is also the first exploration drilling project for SOCAR outside Azerbaijan. If successfully implemented, the company will strengthen its position in the Middle East and expand its presence in the international energy market, confirming its status as one of the key players in hydrocarbon exploration and production.

Historical Background

The project was planned well in advance, as the results of the fourth round of bidding for natural gas exploration in Israeli waters were summarised in October 2023. Concurrently, a consortium comprising SOCAR, NewMed Energy and BP was declared the winner of a tender issued by the Israeli Ministry of Energy for a licence to undertake exploration activities in "Area I". SOCAR was selected as the operator of the project, but its implementation was postponed due to the escalation of the conflict between Israel and the Palestinian group Hamas.

On 17 March 2025, Israel's Minister of Energy and Infrastructure Eli Cohen and the Ministry's Petroleum Commissioner Hen Bar-Yosef awarded the consortium licences for six exploration blocks.

"We are pleased to award today the first licences following the fourth competitive bidding process, which represents a breakthrough in natural gas exploration in the State of Israel. These licences, along with others to be awarded later, express the companies' commitment to investments that will amount to tens of millions of dollars in the first phase, and perhaps even more in more advanced phases," said Bar-Yosef.

For SOCAR and BP, this project will serve as a gateway to the Israeli gas sector. The Area I site, spanning approximately 1,700 square kilometres, is strategically located in the northern region of Israel's exclusive economic waters. SOCAR's share in the consortium will be 33.34%, with BP and NewMed Energy each holding 33.33%.

It is anticipated that the initial phase of activities in this area, which has received minimal exploration attention to date from a natural resource perspective, will concentrate on seismic and associated studies. The decision to proceed with exploration drilling in the most promising areas will be based on the results of this work.

As a general rule, exploration licences are granted for an initial period of three years, as set out in the tender terms. During this period, licence holders must complete a mandatory work programme to assess the potential for a natural gas discovery in the allocated area.

Following this initial period, an extension may be requested for a further two years, subject to the approval of an updated work programme and drilling commitments in at least one of the licence blocks. If all commitments are met, the licences may be extended for up to seven years.

The arrival of SOCAR and BP is great news for the State of Israel. Natural gas is a strategic asset that strengthens our economic and political position in the world in general and in the Middle East in particular," said Energy Minister Eli Cohen at the licence ceremony. He emphasised the importance of expanding natural gas production for both domestic consumption and export, particularly in the current circumstances.

In turn, Minister of Economy Mikayil Jabbarov said that the licences granted to the consortium with the participation of the State Oil Company of Azerbaijan "are of strategic importance in terms of strengthening the international position of SOCAR and the use of innovative practices".

Yossi Abu, General Manager of NewMed Energy, emphasised the significance of this development, noting that it marked the inaugural venture of a national oil company from a Muslim country, the State Oil Company of Azerbaijan, into the Israeli energy sector.

"This partnership, along with those of BP and NewMed Energy, holds significant economic, political, and strategic value. Strong relationships between countries are often built on strategic, mutually beneficial partnerships. Long-lasting relationships are those that create value for both parties. We have seen this in recent years, and when it comes to the growing natural gas partnership, we continue to promote and strengthen it," he said.

Export Potential

With large gas fields such as Tamar and Leviathan already in production, Israel has established itself as a key gas supplier in the Eastern Mediterranean.

The country produces 25 billion cubic metres of gas per year, with approximately 55% being utilised domestically and the remaining 45% being allocated for export.

In 2024, the country's Energy Ministry announced that the natural gas industry had set a new record for profitability. Total profits from the sale of natural gas and minerals totalled approximately $2.7bn, representing an 8.2% increase compared to 2023. Natural gas exports to Egypt and Jordan increased by approximately 13.4% in 2024. Total natural gas production demonstrated a notable 8.3% year-on-year growth.

According to Eli Cohen, the increase in exports to Egypt and Jordan demonstrates the strategic importance of the gas industry for Israel, contributing to regional stability, security and the country's international standing.

"My policy is clear: maximising the use of Israel's gas fields. We want to see more companies, more competition, more reserves for the domestic market and more opportunities to export natural gas next year," he said.

It is also crucial to note that the issue of export diversification is of paramount importance for the country. Israel is currently exploring various supply routes to Europe. In 2022, Israeli officials announced their country's intentions to contribute to efforts to replace Russian gas in Europe. In June of that year, an agreement was signed in Cairo by Israel and Egypt – in the presence of European Commission head Ursula von der Leyen – to supply liquefied natural gas to Europe. The gas is expected to be transported by Israel to its neighbouring country, Egypt, where it will be converted into liquefied gas and then delivered by tanker to Europe.

At the same time, Israel is also considering the possibility of connecting to the Southern Gas Corridor. The participation of SOCAR and BP in the exploration of new fields could play an important role in expanding export opportunities and strengthening energy cooperation in the region.

The head of NewMed Energy has also emphasised the importance of expanding gas exports, noting that "the Israeli market is currently saturated". He highlights that the country's gas reserves, already explored to the tune of 1,000 billion cubic metres, are sufficient to meet demand for over 50 years. If these reserves are not exported, they will remain untapped and will not generate any benefits. He emphasised that maintaining energy security is paramount, and that an export policy is crucial for attracting foreign investors and facilitating the development of the fields.

He also confirmed that Israel is considering the Southern Gas Corridor as a possible route for gas exports. "The pipeline from Azerbaijan crosses Türkiye and reaches Italy, which is an example of a potential long-term strategic market. We currently export gas to Jordan and Egypt, and we see more prospects for exports in the future. One option under consideration is the construction of a pipeline from Israel through Türkiye to Europe, with the possibility of using SOCAR's existing infrastructure.

In terms of gas supply, the project of gas prospecting in Area I offers good prospects both for Europe as an end consumer and for the Southern Gas Corridor. The exploration of the Israeli shelf by SOCAR and BP could potentially establish new supply routes and bolster the role of the Southern Gas Corridor in ensuring Europe's energy security.

Strategic Move

As for SOCAR, the company sees its participation in offshore projects in Israel as a strategic step to strengthen its position in the region. The first such step was taken on 31 January 2025, when the state-owned oil company signed an agreement with Israel's Union Energy to acquire a 10% stake in the Tamar project, one of the largest offshore gas fields in the Mediterranean.

"With this step, SOCAR has started to implement investments in exploration and production projects in the Mediterranean region," the Azerbaijani state company said.

Located off the coast of Israel, the Tamar field is a major supplier of natural gas to the region, playing an important role in energy security and economic growth.

In addition to the licence for gas exploration in "Area I", SOCAR signed a memorandum of understanding with Union Energy on 17 March 2025 for joint gas exploration in Israel's exclusive economic zone. "The implementation of this agreement will contribute to the expansion of international cooperation between the parties and provide access to new energy resources," Jabbarov said.

Details of the document were not disclosed, but it is already clear that SOCAR is actively seeking to expand its presence in the Middle East region.

This is confirmed by the Azerbaijan State Oil Company's purchase of a 3% stake in the SARB, Umm Lulu, Bin Nasher and Al Bateel offshore concession project from Abu Dhabi Oil Company (ADNOC). The transaction, which will be completed on 30 May 2024, is valued at $285 million. SOCAR's revenues from the implementation of this project amounted to ₼191 million, net profit of ₼16 million.

So there is every reason to believe that all these projects are just the beginning. SOCAR is confidently moving towards the Middle East, expanding its horizons and strengthening its position in the international arena.

In the context of Azerbaijani-Israeli relations, the expansion of the energy partnership will contribute to the strengthening of Azerbaijani-Israeli relations. It will open new opportunities for mutually beneficial cooperation in various fields.