Tag Archive: Liquefied natural gas

I have received some feedback concerning an I wrote last month on Israel’s natural gas economy that I would  like to address. In sum, the piece argued that without implementing proper policy to govern export quotas, the world’s largest publicly owned oil & gas (o&g) companies – the 6 largest are collectively known as the supermajors – would not invest the billions needed to properly develop Israel’s offshore gas fields. Without such investment, a significant amount of natural gas could remain in the ground or completely undiscovered – ultimately costing the Israeli economy .

A number of individuals have commented that another strong reason – perhaps, even, the primary reason – for the lack of investment by the supermajors (ExxonMobil, Shell, BP, Chevron, ConocoPhillips, and Total) was due to their interests in the Arab world. If these companies were to engage Israel, the argument goes, then they might be closed out of lucrative opportunities in places like Saudi Arabia, Qatar, UAE, Kuwait, and so on. However, upon closer examination, this line of thinking does not seem to hold water, at least in this case. Consider the following:

, the Australian firm that recently became the in Israel’s 480 bcm Leviathan field, is a major (although not supermajor) oil & gas company, with a market cap of $28.61bn and operator of several of the world’s largest LNG facilities. However, Woodside is also deeply involved with the A$440 million oil project in Western Australia, a JV that counts KUPEC as a 33% stakeholder. , or Kuwait Foreign Petroleum Exploration Company, is a subsidiary of Kuwait Petroleum Corporation, the country’s state-owned o&g company.

Then there is also , the Italian company and of French energy giant EDF. In November, Edison became a in Israel’s southern economic zone. However, Edison was as a strategic partner precisely because this license encroaches upon the territorial waters of Egypt, where the company already operates extensively. Edison holds a in the Abu Qir licesnse and a in the Sid Abd El Raham concession, both of which are located in the Nile Delta. The company also holds a in the West Wadi El Rayan license. Outside of Egypt, Edison also holds a in the Reggane North Block in Algeria. Lastly, Edison is a key stakeholder in the Adriatic LNG terminal located in the Eastern Mediterranean, where also holds a and is responsible for .

It is also worth mentioning two other companies – one a national major and one a supermajor – that submitted closed bids to become a partner in the Leviathan field. While these companies have not actually become partners in any Israeli licenses, the assumption here is that if they bid they were also ready to win.

(KoGas), the national o&g firm of South Korea, has a of energy relations with Qatar. In fact, the two companies have traded over 9 mta of LNG over the past 15 years, and RasGas has made over 1,000 shipments of LNG to KoGas, which submitted a bid to become a partner in the Leviathan field.

Last, but certainly not least, is French , the sixth largest publicly traded o&g firm in the world. Total also submitted a closed bid to become a partner in Leviathan, yet retains the most extensive connections to the Arab world of any company already mentioned. Indeed, Total has more than projects currently operating in the Middle East, including in the UAE and another in Qatar. In fact, the Qatari government actually . The company is also a joint partner in the development of a being built in Saudi Arabia alongside Saudi Arabian Oil Co.

There is also another reason why the importance being ascribed to the fear of reprisals from the Arab world is being overstated. At present, the global o&g industry is experiencing a renaissance. Petro-resources are at some of the highest sustained price points ever and new technology is unleashing a wave of exploration opportunities not seen in decades.  This is important for two reasons:

  • The supermajors – not the national o&g companies (NOCs) of major petro states – currently retain the expertise and resources needed to extract oil/gas from new, unconventional reserves, like deep sea drilling and shale.
  • Due to the adoption of new technology, a large portion of new oil/gas reserves are being discovered outside the Arab world.

In light of these major shifts, the supermajors should recognize that the balance of their relationship with the Arab world is changing. With unrivaled expertise in extracting oil/gas from unconventional reserves that are increasingly being found outside The Gulf, the supermajors are gaining the upper-hand. This realization should allow more 0&g companies to invest in Israel’s burgeoning offshore energy industry without worrying about the possible repercussions of working with Jerusalem.

Which leads back to the original point made in the op-ed. While relations with the Arab world may have factored into the calculus of companies weighing entry into Israel’s energy sector, and, indeed, we have no way of knowing these companies’ internal deliberations, it seems that several of the world’s largest o&g firms have – or were ready to – invest in the Israel market. Moreover, those that already invested seem to have been met with little if any blowback from Arab partners; meaning, there must be other, more fundamental considerations, deterring investment in Israel’s natural gas economy. And what could be more basic than considerations of supply vs. demand and return on investment – issues that hang in the balance as Israel sorts out its natgas export policy.

This past week there was a large conference held at Kfar Macabbiah in Ramat Gan, focusing on development of Israel’s natural gas reserves. The event was attended by a , which was being led by the American Department of Commerce, and was comprised of US government officials (including [D-La.]) and representatives of American energy companies. The delegation was met with a warm and enthusiastic reception, with most of Israel’s key decision-makers in the energy sector present at the conference.

Discussion at the event focused on Israel’s nascent natural gas sector, which will need several injections of significant investment in order to jump start the industry. Parading across the podium were a host of speakers who stressed the world-class nature of Israel’s reserves and the numerous opportunities for cooperation.

  • Mr. Solon Kassinis, the Director of Energy Services in Cyprus, promoted both cooperation with Israel, in terms of building a jointly-operated LNG plant, and additional opportunities to invest in Cyprus’s fledgling natural gas finds, which includes ~200 bcm in Block 12 and a new round of license auctions being decided upon in the coming weeks.
  • Dr. Costis Stambolis, CEO of the Institute of Energy for SE Europe (IENE), discussed the growing need for natural gas in the EU, the desire of the continent to diversify their natural gas imports, and the key role Israel could play in fulfilling this void.
  • Mr. Ken Hyatt, Acting US Deputy Under Secretary of Commerce,  discussed the growing need for collaboration between the two countries in this sector.
  • Mr Lawson Freeman, VP at Noble Energy, delivered an incredibly interesting presentation (complete with photos) on the  progress Noble has been making in the construction of the Tamar drilling platform. The platform weighs some 20,000 tons, was constructed at a yard in Texas, and is already en route to Israel on a barge crossing the Atlantic Ocean.

One thing for sure is that there was a palpable sense of excitement – and, perhaps, a tinge of desperation – surrounding the visiting US delegation. Honestly, why else would the conference hire a famous Israeli saxophonist to play during a coffee break in the schedule? This is in addition to key meetings the US delegation had with the Ministry of Energy, the state owned operator of the country’s domestic pipelines (INGL), and a reception at the American ambassador’s residence. But who can blame Israel for trying so hard? The country is sitting on gas reserves valued at almost , yet does not have arrangements with any major drillers or operators who possess the necessary expertise in deep sea drilling or LNG facilities that would turn these BCMs into NIS.

On that note, , an Australian exploration and production company, seems to be in the to get a piece of the Leviathan (480 bcm) pie. Woodside is currently overseeing the operation of two LNG plants in Western Australia, the Karratha Gas Plant and the Pluto LNG Project, which produce 16.3 mta of LNG and 4.3 mta of LNG, respectively. A decision on the future strategic partner in Leviathan should be announced in the next 2-3 weeks.

Overall, it seems that Israel is – above all else – keen to move forward with exploration and, most likely, exportation of its natural gas reserves. In the near term, this could lead to Israel getting into bed with Moscow, which has its own set of implications, or with Woodside, which, put quite simply, does not have the geopolitical clout of a Gazprom. That being said, the push surrounding this American delegation – coupled with Israel’s recent – leaves the impression that Jerusalem is holding out hope for a Western partner, which will satisfy the criteria of expertise, influence, and steer clear of controversy. To say the least, this is shaping up to be a very interesting winter in the Eastern Mediterranean.

. | .

Get every new post delivered to your Inbox.

Join 129 other followers