Reforms intended to speed the development of Israel’s offshore gas resources are still mired in political process, with little clarity as to when government approval might be granted.
A compromise deal was hammered out between the government of Benjamin Netanyahu and the consortium that owns Israel’s 22 trillion cubic feet (tcf) Leviathan gas field at the end of June
The aim was to create competition in the country’s gas production and supply sector and ensure reasonable prices for consumers. The scheme was also intended to encourage the main consortium partners to quickly proceed with development of Leviathan and expansion of the 10tcf Tamar field, which is already supplying the Israeli market.
The major shareholder in the Leviathan project is US-based Noble Energy with 39.66% along with Delek (22.67%), Delek subsidiary Avner Oil (22.67%) and Israeli exploration company Ratio (15%). Noble Energy and Delek are also partners in the Tamar field and the smaller Karish (1.8tcf) and Tanin (1.2tcf) fields.
But under pressure from the public and politicians, the agreement was put out for consultation until 21 July, followed by two days of public hearings on the subject on 22 and 23 July.
The main elements of the deal currently on the table are:
It is now unclear what further hurdles the package will have to overcome in order to gain final approvals - whether, for example, it will be submitted to the government, or thereafter to parliament as well.
One stumbling block is that the economy minister has refused to take on antitrust responsibilities related to the gas sector – a process intended to sidestep the Israeli Antitrust Authority (IAA), which previously blocked the development of Leviathan (see GLM 14 January 2015).
And with the details of the reform package under intense public scrutiny and politicians keen to win favourable conditions for the domestic market, there is the possibility that the terms could be amended.
An Israeli industry source said that the Leviathan consortium was satisfied with the terms as they stand, but any changes would have to be re-negotiated.
Even if the plan is passed in its current form or with few changes, the sale of the companies’ stakes in the offshore fields could prove challenging.
According to Dr. Amit Mor, CEO of consultancy Eco Energy, the divestment of the Tamar holdings is the less problematic element.
“They have six years [to divest the holdings] and I don’t see any major problem. I think financial investors would be willing to invest in this field.”
Tamar is already producing gas and contracts are in place, potentially giving an investor a steady return.
But Karish and Tanin, which are still to be developed but would supply Israel rather than the export market, are less straightforwardly attractive, according to Mor.
“I think the government will have to provide a safety net and guarantee at least 4 billion cubic metres/year [of purchases from domestic market] otherwise I don’t see any company willing to purchase that, and compete with Leviathan and Tamar.”
He added that to this end, commitments would be needed from large Israeli consumers such as electricity producers, to buy the gas.
Italian exploration and production company Edison was previously linked to a possible purchase of stakes in the Karish and Tanin fields – the sale of these assets had already been mandated by the IAA in 2014.
Edison has a 20% share in the Neta and Royee licenses offshore Israel. The company had not responded to enquiries about a potential purchase of the Karish and Tanin assets, and its activities in Israel, by Thursday afternoon.
The longer-term goal of developing Leviathan rests not only on the legal framework under debate but also on the willingness of buyers to sign long-term contracts to guarantee markets for the gas and justify investment.
The quantities of gas involved are too big for the domestic market, and the consortium has sought export deals with a variety of partners.
Export projects could include supplying LNG portfolio company BG at its Egyptian Idku plant through a new undersea pipeline. Gas could also be sold to Jordan’s National Electric Power Company (NEPCO) by building a land-based pipeline in northern Israel.
Letters of Intent were signed between Noble and both companies in 2014, but amid the political uncertainty surrounding Israel’s gas resources, they have not turned into more concrete agreements.
Mor noted that the economic climate could also hinder progress on Leviathan. At the moment “oil and gas companies are only looking to postpone investment,” he said.
Noble did not respond to a request for comment on the current reform proposal, and Delek did not comment.
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