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By Jennifer Warren on Nov 13, 2013 with 4 responses

Israeli Eastern Mediterranean Gas Finds Offer New Opportunities

Geopolitics in Region Could be Impacted

Recent natural gas discoveries off Israel’s eastern Mediterranean Sea are reversing its role of importer to that of exporter. According to the Energy Information Administration (EIA), the larger finds — the Tamar and Leviathan fields — hold estimated reserves of 10 trillion cubic feet (Tcf) and 18 Tcf respectively. These fields are part of the Levant Basin, with probable oil reserves of 1.7 billion barrels and probable natural gas resources of 122 Tcf.

energy_infrastructure_map

In the past, Israel imported most of its natural gas supply from Egypt. “Until early in 2012, the country received 40% of the gas it needed — 90% for electricity generation — from Egypt via a marine pipeline between El Arish and Ashkelon,” notes Oil & Gas Journal. Egypt, facing gas shortfalls, is planning to import gas via LNG, though pipeline deliveries from Israel are likely cheaper. Spot LNG in the east Mediterranean region is currently priced around $12.00 per million British thermal units.

In 2010, Israel imported 74 billion cubic feet (Bcf) of natural gas, and 25 Bcf in 2011, with consumption of 117 Bcf in 2011. Now Israel plans to export 40% of its natural gas reserves, as they have far more supply than demand can support. This story has repeated itself in the U.S., with the gas boom, followed by falling prices that has been a drag on oil and gas sector profitability.

The American firm Noble Energy is credited with most of the natural gas discoveries in the region. Noble is also the explorer attributed with the discovery of the estimated 7 Tcf Aphrodite field in Cypriot waters. Other smaller discoveries, the Dalit and Tanin fields, will come online at some point as well. To compare, Texas’ Barnett Shale has proved reserves of 32.6 Tcf and the Fayetteville gas play is 14.8 Tcf, according to EIA estimates.

This chart reflects the estimated reserves in the East Mediterranean and when first volumes are expected to be online:

EMedDiscoeries

Israel’s gas demand will grow over the coming decades. Natural gas is now used in nearly half of Israel’s power generation, versus 38% in the  recent past. The overall economy will gain from the cheaper gas supply, mirroring the impacts seen in the U.S. economy, such as benefits to manufacturing and industrial activity, reduced carbon emissions, and lower energy bills. This one-time boon may help reverse the monopolies held in numerous industrial sectors in Israel. In 2011, citizens waged a Facebook protest in dissatisfaction with the cost of living and socioeconomic inequalities, called the “cottage cheese protests.” The economic boost provided by gas may redress this to a degree; in the U.S., disposable income increased $1,200 via reduced energy bills and the energy savings passed through to other goods and services.

At a recent presentation at the Dallas Committee on Foreign Relations, Hillel Schuster, senior fellow at Bar-Ilan University and head of corporate finance at KPMG Israel, noted that Israel will be building considerable infrastructure in the years ahead to develop and distribute the gas supply. Noble and Israeli partner Delek estimate total investments of $5 – $15 billion to develop the Leviathan field’s needed pipelines or LNG facilities to export. Export markets could include piping gas to Turkey, Greece, Jordan, the Palestinian Authority, and possibly Egypt. A Delek executive says electricity tariffs could fall 40-50% by using Leviathan gas. If it manifests, an undersea pipeline to Turkey could involve $2 – $3 billion in investments.

The risks to the Eastern Mediterranean boom for Israel would be that production is stalled owing to unforeseen technical difficulties, new manifestations of violence, or a policy reversal. The government in Israel passed the gas export legislation expediently, but policy is headed toward a favorable direction for developing the resources. Additionally, the purchase of Israeli gas exports by other Middle Eastern countries could be politically charged. Turkey needs more gas imports but diplomatic relations are cool since a May 2010 incident. At the same time, gas exports by Israel could smooth relations over time among some neighboring countries.

(The Dallas Committee was part of a three-city U.S. tour organized by Bar-Ilan University.)

  1. By SRSrocco on November 13, 2013 at 7:17 pm

    Hello Again Jennifer. Nice write up on the Israeli Eastern Mediterranean Gas finds. I see you mentioned Noble Energy in your article. It is true that falling natural gas prices have put a drag on many of these shale energy companies balance sheets.

    Noble has incurred over $1.4 billion in negative free cash flow in 2011-2012. Chesapeake, the darling of shale gas, actually has more debt than the value of their reserves at present market natgas prices.

    Looks the majority of shale gas players are spending nearly 2 times more than their operating cash flow on CAPEX. What a mess from companies that are supposed to be exploiting the new shale gas energy savior…. aye?

    And while shale gas production is still holding its own in the states, four of the fields are already in decline. The Barnett peaked in Nov 2011 at 6.3 Bcf and at last count is producing a little more than 4.6 Bcf.

    I believe once the Marcellus peaks, then we will really in a world of hurt.

    Anyhow… always great reading your articles.

    steve

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    • By Jennifer Warren on November 14, 2013 at 9:19 am

      Thanks Steve. If gas prices will rise, which they eventually will, things will be better for gas-focused firms. Exports will help. This is why firms are leaning into oil more too.

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      • By SRSrocco on November 14, 2013 at 11:02 am

        Jennifer…. correct. However, I believe a “only a few” of the shale energy players will be able to capitalize on higher natgas prices. Once shale gas production declines, prices will indeed head up much higher. Unfortunately, I don’t see overall natgas production increasing for several years.. if ever.
        Once natgas prices rise, it will make less economic sense to ship LNG… and that is on both sides of the coin. Also, it is true that the energy companies are switching to more rich liquid plays as they actually provide some sort of profit as break-even for shale gas is in the neighborhood of $6-7 mmbtu. Aubrey McClendon…. it was fun while it lasted… aye?
        Core Labs CEO Dave Demshur spoke at the Denver EnerCom Oil & Gas Conference a few months ago and stated that he believed the planetary peak in oil production would occur in 2014, 2015 or possibly 2016.
        Core Labs who has 70 offices in more than 50 countries, analyzes drill results from some of the major and 100′s of small oil & gas companies throughout the world. If anyone is qualified to make a forecast on peak oil production, Core Labs most certainly is.
        Lastly, when asked if the United States would become energy independent, Demshur smirked and stated, “No chance.”
        Again… always a pleasure.
        Steve St. Angelo
        SRSroccoReport.com

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  2. By Elizabeth Overton Colton on November 14, 2013 at 9:29 pm

    Good reporting, Jennifer. Keep it up. Thanks for interviewing our DCFR speaker. cheers, Liz
    (CEO-Dallas Committee on Foreign Relations)

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