Israel's time to deliver
Israel may at last start to put its plentiful offshore gas discoveries to use, domestically and regionally
Six years after Noble Energy discovered the giant 22-trillion-cubic foot Leviathan gas-field, the project that was to transform Israeli energy prospects has yet to start. The delay has cost the country $26bn in lost revenue, says energy minister Yuval Steinitz. Finding foreign buyers for liquefied natural gas was one problem. But domestic Israeli politics and laws also kiboshed the original export dream. Israel's antitrust regulator challenged the dominance of Noble and its Israeli partner Delek Drilling in the country's energy sector, leading to a dispute with the government that threatened to sink Leviathan altogether.
Finally, in June this year a deal was reached under which Noble agreed to gradually reduce its share in Tamar by 11% (initially selling 3% to an Israeli investment firm), while Delek would surrender its whole 31.2% stake. The deal was part of an amended natural gas regulatory framework. In August, Delek and its partner Avner sold the Karish and Tanin fields in the north of Israel's offshore zone to Energean Oil and Gas, of Greece.
With these matters settled, the Israeli government finally approved the Noble-led consortium's Leviathan development plan, though a final investment decision (FID) is still awaited. This is conditional on Jordan's formal approval of a preliminary agreement reached two years ago for the supply of 3bn-4bn cubic metres (106bn-140bn cubic feet) a year for 15 years to the country's state electricity company, Nepco. The deal is thought to be ready. "They are just awaiting the decision of the Jordanian government, and then it will go ahead," says Amit Mor, head of Eco Energy Financial & Strategic Consulting, who has followed events closely.
Sign of the times
Leviathan has also secured a deal in the Israeli domestic market. In May, the partners signed a sales-and-purchase agreement with IPM Beer Tuvia, a private Israeli power company, for the supply of 13bn cm of gas over 18 years, subject to an FID.
Until the Zohr discovery the assumption had been that Egypt would be a hungry market for Israeli gas, not least to help put the country's two LNG plants back into full production. Egypt still remains an option, but-as with Cyprus-current global prices mean that companies operating in Israel's offshore would find it hard to meet the costs of installing production and delivery infrastructure, and then delivering gas to the Egyptian market at a competitive price.
The most likely export option at present lies with a proposed 466km subsea pipeline from Israel to Turkey. The recent restoration of political and diplomatic links between the two countries has given the project new impetus. Even before formal reconciliation, Steinitz was speaking of the two sides having "bridged 80-90% of the gaps. They need our gas and we need this market."
But there are geopolitical issues, too. The planned pipeline to Turkey would need to cross Cyprus's exclusive economic zone. If a solution could be found that reunited the island and enabled relations between Nicosia and Ankara to be established, then the project could proceed without political hitches. In the absence of a solution, under the terms of the UN Convention on the Law of the Sea the Cypriot government is not able to stop the laying of the pipeline, but could delay it by demanding assurances on environmental and economic issues.
Assuming such problems were overcome, the pipeline could be completed in two years, inside the three-year period needed to install platform facilities at the Leviathan field. Plans for the construction of a production platform are proceeding. Leviathan's partners say they will initially drill eight wells as part of a $5bn-6bn programme envisaging eventual production capacity of 2bn cf a day. A 1.1bn cf/d capacity connector to the mainland is planned.
At present, Israel's sole operating off-shore gasfield, the 10-trillion-cf Tamar, supplies about 60% of the country's electricity generation. The field, which lies 5,500 feet below the water surface, has capacity to produce 1.1bn cf/d, but output has been more in the 0.5bn-0.7bn- cf/d range, pulled up or down by seasonal fluctuations in electricity demand. Gas from five wells is fed to the Tamar platform and piped to the Mari B platform for processing before coming ashore at Ashdod.
With natural gas steadily replacing coal and demand estimated to soar over the coming decade, Israel is depending increasingly on Tamar. Mor says this reliance on Tamar "poses a major national security threat. Aside from terrorism, if there was a technical problem, the Israelis and Palestinians would be in the dark."
New gas development opportunities should arise from the offering of 24 more blocks to international competition in November. Potential investors' appetites have been whetted by recent East Med exploration success stories, and some better terms.
Political factors are likely to deter major international oil companies with interests in Arab countries from submitting bids. But more middle-order international firms than in the past are likely to be tempted by this proven gas-prone region.
This article is part of a report series on the East Med. Next article: Egyptian gas's second coming