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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Chevron Doubles Down On East-Med Gas Assets

  • Chevron’s East Mediterranean assets represent 10 Tcf of the company’s global natural gas resource base of about 175 trillion cubic feet.
  • Israel suspended production at the Tamar gas field on Oct. 9, shortly after its war with Hamas began then redirected supplies through a pipeline in Jordan, rather than a direct subsea pipeline to Egypt.
  • Last month, British oil and gas multinational BP reassured investors that its $2B deal with ADNOC to jointly buy a 50% stake in Israeli gas producer NewMed Energy remains on course.
Gas offshore

Back in 2010, U.S. oil and gas giant Chevron Corp. (NYSE:CVX), alongside its partners NewMed Energy (OTCPK:DKDRF) and Ratio Oil Corp., discovered the Leviathan Gas Field, one of the world’s largest deep-water gas fields. Spanning 330 square kilometers with 22.9 trillion cubic feet of recoverable gas, Leviathan is the largest natural gas reservoir in the Mediterranean, and one of the largest producing assets in the region. NewMed is Leviathan's main operator with a 45.3% working interest while Chevron has a 39.7% working interest and Ratio Oil owns a 15% stake. 

Meanwhile, Chevron also owns a large stake in the Tamar Gas Field located just 47 kilometers (29 mi) north east of the Leviathan field. Tamar was discovered in 2009 and its development was fast-tracked to meet immediate local needs after Egypt stopped supplying Israel with natural gas. Tamar supplies 70% of Israel's energy consumption needs for electricity generation. Six production wells at Tamar produce 7.1 to 8.5 million cubic meters of natural gas per day each. The gas field is owned by Chevron Mediterranean Limited (25%), Isramco (28.75%), Tamar Petroleum (16.75%) Mubadala Energy (11%), Tamar Investment 2 (11%), Dor Gas (4%), and Everest (3.5%). Related: Israel’s Natural Gas Flow To Egypt To Return To Normal Next Week

Chevron and NewMed Energy have also partnered in the Aphrodite Gas Field, with Anglo-Dutch oil major Shell Plc (NYSE:SHEL) a third partner. Chevron and Shell each have a 35% working interest in the field, while NewMed has 30%. 

Discovered in 2011, the Aphrodite natural gas field is located about 170 kilometers south of Limassol in Cyprus,  just 30 kilometers northwest of Israel’s Leviathan gas reservoir. An appraisal well has already been drilled to confirm assessments regarding the nature and size of the Aphrodite gas deposit, and marks a “significant step” towards its development. The well is expected to serve as a production well following the completion of the development of the reservoir, according to the Times of Israel. 

Overall, Chevron’s East Mediterranean assets represent 10 Tcf of the company’s global natural gas resource base of about 175 trillion cubic feet. While that might not seem like worth getting into trouble for especially after the eruption of the worst regional conflict in 50 years, Chevron has no plans to abandon its East Med crown jewels. Indeed, the company has vowed to double down and continue developing its gas assets in the region.

"We've got to take a long-term view, which is measured in years and decades. And when you have things in the short term that create the circumstances that we see right now, we have to be prepared to mitigate those risks and to keep people safe and maintain the integrity of our operations,"  CEO Mike Wirth told investors earlier this month.

Israel suspended production at the Tamar gas field on Oct. 9, shortly after its war with Hamas began then redirected supplies through a pipeline in Jordan, rather than a direct subsea pipeline to Egypt. Chevron had requested to export gas through an alternative pipeline that links Leviathan to Jordan as well as Egypt, known as the Arab Gas Pipeline (AGP). But exporting gas through AGP is by no means without major risks and challenges. Experts are now warning that there could be "a severe degradation of the investment climate" as well as serious energy flow disruptions if war breaks out along Israel's northern border with Lebanon and Iran becomes involved. One such critical energy infrastructure under threat is the Arab Gas Pipeline. Gas shipments via AGP--which connects Egypt with Jordan--have been disrupted in the past by attacks in the Sinai Peninsula. AGP has a reported capacity of 234 billion cubic feet per year (640 million cubic feet per day).

Disruptions on AGP gas flows would hurt Jordan the most since the country imports more than 90% of its energy needs and relies on gas deliveries via Israel and Egypt. Jordan is home to a large Palestinian population, and strikes on Gaza have worsened tensions and social unrest in the country. AGP currently ships 44 Bcf of natural gas annually from Egypt to Jordan.

But Jordan is hardly the only country that would find itself in trouble if AGP gas flows were interrupted. Egypt relies on Israeli gas imports to meet some of its domestic demand especially in the summer cooling season, as well as for re-exports that have become an important source of scarce foreign currency.

BP Pushes Ahead With Merger

Last month, British oil and gas multinational BP Inc. (NYSE:BP) reassured investors that its $2B deal with Abu Dhabi National Oil Co. (Adnoc) to jointly buy a 50% stake in Israeli gas producer NewMed Energy (OTCPK:DKDRF) remains on track, despite Israel’s ongoing war with Hamas in Gaza. BP's head of gas and low-carbon energy Anja-Isabel Dotzenrath told shareholders at the company’s investor day in Denver that they remain "very optimistic" about the deal. The two companies are reportedly weighing on whether to improve their initial offer. 

But that reassurance does not necessarily mean the deal is close to being consummated. 

The deal was thrown into question after an independent panel appointed by NewMed recommended raising the asking price by 10%-12%, or as much as ~$250M, which might seem like a stretch considering the company currently has a market cap of $2.9B and $87 million in cash but $1.73B in debt

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Meanwhile, reports have emerged that executives at BP and Adnoc are anticipating further delays on the deal until the political situation improves. Experts are worried that a surge in civilian casualties could make it politically untenable for the companies to proceed, with the death toll in Gaza reportedly in excess of 10,000. Israeli Prime Minister Benjamin Netanyahu has forged an emergency government to direct war against Hamas, and his defense minister has vowed to wipe the militant group "off the face of the earth."

By Alex Kimani for Oilprice.com

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