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Qatar Uses Saudi Strategy To Conquer LNG Markets

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The Natural Gas Giant To Challenge Israel

With no hydrocarbon reserves of…

Game-Changer Leviathan Gas Field Sees Serious Delays

Game-Changer Leviathan Gas Field Sees Serious Delays

The massive Leviathan gas field, nestled deep inside the Levantine basin off Israel’s Mediterranean coast, is considered a game-changer for both Israel and Europe, but a wide range of roadblocks is threatening development, and now production will be delayed by at least a year.

Political hurdles, regulatory approvals and tricky investment decisions have already put production off until 2019, and there are now fears that all the problems surrounding a discovery that put Israel on the energy map for the first time in history will impact prospects for future foreign investment in the country.

As the project landed in controversy, Prime Minister Benjamin Netanyahu—who once dubbed the giant gas field a ‘gift of God’—has maintained that his government's natural gas policy was in the larger interest of the country’s national security, and that it would ensure Israel’s position in the Middle East. And it is, indeed, a trump card for a country flanked by Arab OPEC giants.

For Israel, the $6.5-billion Leviathan natural gas project holds an estimated 22 trillion cubic feet of gas that would render Israel self-sufficient, and even turn it into a major exporter. Geopolitically, this would translate into more power and less vulnerability, particularly to international boycotts.

Still, the regulatory approvals necessary to develop Leviathan languish in political purgatory, and it was discovered in 2010.

On 14 February, Netanyahu strongly urged the High Court of Justice to approve the natural gas framework agreement, which has gotten nowhere since it was first proposed. Related: Electric Car War Sends Lithium Prices Sky High

More than six years have passed since the discovery by U.S.-based Noble Energy, and the country has not been able to agree on a proper gas strategy, which in turn has, to some degree, soured investor sentiment. Not only has the regulatory red tape affected gas production from Leviathan, but it has also hampered the expansion of the nearby Tamar gas field.

Texas-based Noble Energy Inc. and its Israeli partner, Delek Group, control most of Israel’s gas fields, including Leviathan and Tamar—a smaller field that is already producing. Talk of a monopoly on Israel’s gas has wreaked havoc with development plans.

Drilling in Leviathan has also been delayed by massive street protests against the privatization of natural resources. The protestors are urging the government to nationalize the gas fields.

Last December, the government signed an agreement to allow the consortium to start work on extracting gas from Leviathan, but this is a long and winding road.

One of the major challenges for the gas field is the decline in global fuel prices and concerns over current global market conditions. Leviathan's gas is mainly slated for exports, and considering the global economic conditions, it would be difficult to raise the billions of dollars that is needed to develop it. Related: Is This The Most Bullish News For Oil Since 2014?

Israel has already signed gas export agreements with Palestine and Jordan, and has also held discussions on sending fuel to Egypt and Turkey.

Noble Energy and its Israeli partners signed the first contract to supply fuel from Leviathan last month. The group will supply six billion cubic meters of gas over 18 years to two power stations owned by local electricity producer, the Edeltech Group, assuming the project actually gets off the ground.

Bini Zomer, Noble Energy’s Israel Country Manager, is optimistic in spite of the drop in oil and gas prices that have led to the company cutting its investments. He said in an interview, “Noble believes that the Leviathan project can move forward based on domestic and export opportunities and because of the positive climate created by the Natural Gas Framework."

But the challenge is on, and the competition is getting stiffer.

Even as the stalemate around the Leviathan gas field continues, Italian energy giant Eni has discovered an even larger and more easily accessible gas field in Egyptian waters, predicting that it could begin producing natural gas at least two years ahead of Leviathan. Related: 35% Of Public Oil Companies Could Face Bankruptcy

However, the development of the Leviathan gas field could be instrumental in changing the energy landscape of the eastern Mediterranean and the entire Middle East, provided that relations between Israel and Turkey continue to be on the positive side and Israel's Supreme Court does not overrule Netanyahu’s deal with Noble and Delek.

Netanyahu was quoted in FT as saying, “If we go backwards, we’ll fall into the abyss […] the investors won’t wait for us; they’ll go elsewhere, to our enemies.”

Local experts are also against the gas field, as they believe this would result in high returns for the American company compared to its Israeli partners.

In order to make Leviathan viable, a robust export market has to be developed. And for this to happen, Israel needs to secure cooperation of many players and needs to do some serious thinking on its relationship with countries such as Turkey and find the right balance between energy and diplomacy. Unfortunately, the Middle East isn’t known for its prowess in balancing these relations.

By Charles Kennedy of Oilprice.com

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  • John Scior on February 25 2016 said:
    Its too bad people cannot understand the position of an investor who risks their investment for questionable return. If you're going to nationalize the profitable wells, then what about subsidizing all the failed attempts to discover resources. If this discovery was a true gift from God, I'd say he should stop blessing people with such wonderful gifts if they are going to squabble over it like they do. Issue is reminding me of the Holy Lands. Here is a perfect tourist attraction for 3 major religions of the world to come and dump tourist dollars in a land desperately in need of it , but the parties there want to war with one another to the point tourists are afraid to go. What a waste.

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