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Leviathan partners weigh FLNG option

LNG exports pose attractive proposition for Israel, restricted by limited pipeline export outlets

The logic for Israel to explore the possibility of LNG exports lies both in data and its geopolitical circumstances.

Israel has proven reserves of 1tn m3 of natural gas. In addition, several drilling operations are to take place over the next few years following the granting of licences to a consortium operated by UK independent Cairn Energy—partnered with London-listed Soco and Israel's Ratio—and a consortium operated by Greece's Energean. The energy ministry estimates that yet-to-find discoveries could more than double Israel's current reserves.

The Tamar field supplies 97pc of Israel's 11bn m³/yr consumption, with the rest from LNG imports. Production will begin at the Leviathan field at the end of 2019 and at Karish in mid-2021. Output from these three fields will equate to supply capacity of 30bn m³/yr.

Export contracts have been signed from Tamar (0.1bn m³/yr to Jordan started in 2017, 3.5bn m³/yr interruptible to Egypt as of 2020) and from Leviathan (3bn m³/yr to Jordan, 3.5bn m³/yr to Egypt), while domestic consumption is due to rise to 15bn m³/yr by 2025.

There will be extra supply available as of 2021 from both of these first-phase developments, with still more to come, based on the proven and yet-to-find resources.

FLNG proposal

While options are being examined for commercialisation, the Leviathan partners announced at the end of July that they are considering investing in a floating liquefied natural gas (FLNG) facility. In late July they signed an agreement with Norway's Golar LNG and Belgium's Exmar to carry out engineering services and detailed engineering planning. The proposed FLNG unit would have capacity of 3.3-7bn m³/yr.

The partners considered an FLNG option in 2012, when the concept was still new. Today there are three FLNG projects in operation around the world, and the technology and economics are more proven.

If the Leviathan partners—Israel's Noble Energy, Delek Drilling and Ratio—decide that FLNG is the best option for the field's future development stages, then they will negotiate a binding long-term charter agreement with either Golar or Exmar to finance, build, operate and maintain the facility. The Leviathan partners would supply gas and pay a tolling fee to the unit's owners.

97pc — Israeli consumption from Tamar field

The facility would be located in Israel's economic exclusion zone, which could speed up the regulatory approval process and enable the commercialisation of further volumes of gas. Leviathan gas could then be plugged into the global market, thus lessening the field's dependence on regional sales and reducing geopolitical/security risks associated with cross-border pipelines.

The aim is for the Leviathan FLNG facility to be operational by the mid-2020s. Given its proximity to existing and potential LNG markets in Europe, Africa and the Mid-East Gulf, Leviathan FLNG should have certain advantages over the raft of other projects jockeying for mid-2020s start-up and aim to fill another projected supply gap post the early 2020s.

But FLNG does have certain cost implications compared to onshore terminals. The economic case to pool Israeli and Cypriot gas reserves together to achieve benefits from scale and pipe to an onshore liquefaction terminal, most likely on Cyprus given Israeli Nimbyism, still looks compelling.

Cypriot vacillation on its gas export options, as it continues to flirt with sending some volumes into the self-sufficient Egyptian market and mulls an ambitious pipeline to Italy project, could, though, encourage Israeli players to go it alone. The Leviathan partners may take a view that they can be decisive and move ahead without more complicated Cyprus-Israel negotiations, while keeping the door open for Cypriot resources to share the FLNG facilities at a later date.

Source: Petroleum Economist
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