Israel faces upstream reform challenge
A government committee has failed to tackle the root causes of a slump in upstream expansion, argues energy analyst Gina Cohen
In 2013, the Israeli government decided to determine how much of the country's 33 trillion cubic feet of gas would have to remain for local consumption versus the volumes allowed for export. In addition, the decision specified that all export facilities would have to be located in Israeli waters and all fields, regardless of whether the gas was for local consumption or exports, would have to be connected first to the local market.
An inter-ministerial committee (the Zemach committee), which had submitted its analysis to the government in a 130-page document, was confident that its recommendations, which were endorsed by the cabinet, would stimulate gas exploration. The 2013 report stipulated that the government would review the situation five years later.
That revision, in the form of recommendations, was published by a new inter-ministerial committee (the Adiri committee) in July this year. The report didn't come a day too soon, because in the interim period not a single exploration well was drilled compared to 19 drilled in the five years prior to 2013.
The new committee concluded that without sufficient demand (Israel consumed 1bn cubic feet a day of gas in 2017 and is slated by the committee to reach only 1.36bn cf/d in 2025), no further exploration would take place. It added that the obligation to connect new fields to the local market "would dampen investors' interest and harm competition".
The Adiri committee, like the previous one, undertook a benchmark assessment of countries with similar characteristics to Israel and concluded that "these countries had decided not to limit leaseholders' ability to export gas, and that exports (aka the availability of market) were needed to foster development and increase supplies".
The new committee's interim-recommendations were submitted in July for public hearing.
The committee acknowledged in its introduction the lack of new exploration and the fact that Israel's first tender process for granting new drilling licenses- in 2017-had failed to attract one new company. The expectation, therefore, was that it would reverse prior decisions and come up with proposals on how to stimulate the market. But this wasn't the case.
The recommendations showed the team believed that different results could be achieved simply by carrying on as before. The bottom line was that any new field discovered going forward above 50bn cubic metres of gas in place would have to be connected to the local market and every field above 25bn cubic metres would have to sell gas to Israel, in a market that was totally saturated.
In addition, although the committee stated that "it is best to encourage exports of gas in the next decade when demand for gas in the local market is relatively low", it provided no incentives or assistance to achieve this. Markets around Israel include the Palestinian territories, Jordan, Egypt, Cyprus, Turkey, Lebanon and Syria, some of which are certainly target markets for surplus Israeli gas, but none is easy to crack.
New policies needed
The report contains only interim recommendations, and it must be hoped that the final government decision - due to be published by the end of 2018 - will reflect the drastic changes needed to encourage new exploration and development.
At the very least, new policies are needed to stimulate local demand and promote infrastructure construction to bring gas to market throughout the country. At the same time, restrictions on exports of new discoveries must be lifted, with government-to-government contacts necessary to overcome geopolitical obstacles. The government should also approve exports via floating LNG facilities and streamline all processes.
Simply tinkering with the recommendations won't produce the desired results.