Israel to export gas this decade, developers seek expert partner

Thu Nov 15, 2012 5:13pm IST

Related Topics

Stocks

   

* New Leviathan partner to be chosen by year's end

* Cyprus speeds ahead on LNG, Israel stuck in red tape

* Floating LNG vessel could be answer for export

By Ari Rabinovitch

TEL AVIV, Nov 15 (Reuters) - Israel, once energy poor, is expected to become a gas exporter by the end of the decade and the companies developing its huge offshore Leviathan find are about to pick a fourth partner to gain the crucial know-how.

A number of foreign firms have been in a bidding war for the fourth stake in the Leviathan field, where an estimated 17 trillion cubic feet (tcf) of gas made it the world's largest offshore discovery of the past decade when it was found in 2010.

"A decision will be made by the end of the year," said Yigal Landau, CEO of Ratio Oil Exploration, which is a partner in the U.S.-Israeli consortium developing the field.

"More important is the knowledge and expertise the company brings, especially to the 'midstream'," Landau told Reuters, referring to the construction of an underwater pipeline and a liquefied natural gas (LNG) terminal.

"Long term, that will pay off more than if some other candidate comes and says they are willing to value Leviathan at an additional billion dollars in the short term," he said.

Until now the consortium has revealed little about the decision making process.

In a statement to the Tel Aviv Stock Exchange last month, the Leviathan partners said Australia's Woodside Petroleum had submitted a bid to purchase a stake of up to 30 percent. Israeli financial newspaper Globes listed Russia's Gazprom as another leading contender.

Experts have valued Leviathan at between $5 and $7.5 billion at this stage. Texas-based Noble Energy has a 39.66 percent share of the field. Israel's Delek Group, through two subsidiaries, holds 45.34 percent and Ratio has the remaining 15 percent.

Leviathan, where production is expected to begin for the domestic market in 2016 and around 2018 for export, will be connected both to Israel and Cyprus, Ratio's Landau said.

Nearby Cyprus in the eastern Mediterranean, with its own newly found gas, is likely to provide the liquefaction facilities Israel could use to reach export markets by ship. Some analysts say future possibilities also include a Red Sea terminal so it can target Asian markets.

GAME CHANGER

An exploration frenzy in the Levant Basin - shared between Israel, Cyprus and Lebanon - began in 2009 when Noble and Delek announced the discovery of the Tamar field some 90 km off Israel's coast. With reserves estimated at 9.7 tcf, Tamar alone can meet Israel's gas needs for decades.

Leviathan was found the next year, opening the potential for exports and spurring Israel to set up a natural gas wealth fund. Government officials have said total revenues from gas sales could reach $130 billion by 2040.

The U.S. Geological Survey at the time said the Levant could hold 122 tcf of recoverable gas, making it one of the world's richest deposits. The first big find by Cyprus followed in 2011 in its block 12, with an estimate of 7 tcf.

The gas bonanza rapidly inflamed the tensions in the region.

An initial flurry of angry exchanges between Israel and Lebanon - which said some of Leviathan could be in its own waters - has largely subsided. Lebanon has delayed its launch of tenders for exploration.

Turkey maintains ethnically-split Cyprus has no right to explore for oil or gas and it has said that companies taking part will not be allowed to participate in new energy projects in Turkey.

Ankara supports a breakaway Turkish Cypriot state in northern Cyprus. It does not have diplomatic relations with Greek Cypriots, who run the internationally recognised government searching for offshore gas.

Cyprus has opened talks this week with Italy's Eni, South Korea's Kogas, France's Total and Russia's Novatek for the development of four blocks to the south and southeast of the island.

Meanwhile, 19 new wells are expected to be drilled in the next two years in Israeli waters at a cost of about $2 billion, and many of these will go on to seek oil in the layers beneath the gas deposits.

EXPORT IS KEY

Since the countries involved in the exploration have such small domestic markets, foreign companies are unlikely to invest unless there is a certainty of selling the gas abroad.

In Israel, where domestic energy security is a priority and there is an argument for conserving gas for the country's own needs, setting export quotas has been a long process.

Only recently a government committee determined that up to 50 percent of output from the biggest wells can be exported. That can jump to 75 percent through trades with other firms.

A planning controversy in Israel has delayed a decision about where an LNG terminal, needed to cool the gas into liquid form for export by ship, can be built. Some experts have even proposed building an artificial island at sea for the plant.

The solution, for now, may be with Cyprus. Hoping that gas riches can offset one of the worst recessions in its history, the island state has quickly pushed ahead with plans to build an LNG plant at Vassilikos on its southern shore.

The plan is for the plant to have three 'trains', or facilities, each producing 5 million tonnes a year, and to be completed by early 2019, said Solon Kassinis, director of the Cyprus energy service.

FLOATING LNG

While many Israelis want the country to have its own LNG terminal, it is not clear the region has enough gas for two.

Steven Wardlaw, an energy specialist in London with law firm Baker Botts, said it will be difficult to secure funding from lenders for more than one terminal.

"There is a strong argument that there will only be one. And Israel is a long way behind Cyprus in developing an LNG facility," he said.

Of course, if Israel decides it needs one, as the government has implied, it will build one as well, he said. And the plant need not be on the Mediterranean coast.

"There is a great logic in having an LNG facility on the Red Sea. Large tankers can't get through the Suez Canal, so from there they can reach Asia more easily," Wardlaw said.

Also being considered is a technology, still in development, known as a floating LNG (FLNG) terminal. It is a $3 billion vessel that anchors near the fields and liquefies the gas.

South Korea's Daewoo Shipbuilding & Marine Engineering Co agreed to build one for Tamar and Gazprom has signed a letter of intent to buy the gas.

"With pipelines becoming increasingly expensive and the geology and geopolitics of the region, FLNG is absolutely feasible," said Kathleen Eisbrenner of Levant LNG, who helped secure the deal for Gazprom and Daewoo with the Tamar partners.

"I hope they would be interested in working with us in Leviathan as well," she said.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Addressing India's Infra Needs

REUTERS SHOWCASE

FCI Revamp

FCI Revamp

Govt begins revamp of Food Corporation of India to cut waste, tame prices  Full Article 

Banking Fraud

Banking Fraud

Govt probing alleged fraud in two state-run bank branches   Full Article 

New Metro Rail

New Metro Rail

Cabinet approves $1.4 bln new metro rail project   Full Article 

Gold Stagnation

Gold Stagnation

Fading volatility promises long period of gold stagnation  Full Article 

Rupee Gains

Rupee Gains

Rupee hits 3-week high on debt-related dollar inflows  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage