Egyptian gas find may close Israel’s ‘window of opportunity’

Expert says it may be too early to truly know how the discovery of the Egyptian Zohr field will impact Israeli exports.

By
September 1, 2015 11:45
Israel's natural gas

Israel's natural gas. (photo credit: MINISTRY OF NATIONAL INFRASTRUCTURES)

The likely discovery of a large natural gas reservoir off Egypt’s shores must serve as a wake-up call for Israel – a reminder that further delays in the sector could cause the economy undue harm, experts warned on Monday.

On Sunday, the Italian energy giant Eni announced that it had identified the Mediterranean’s largest known gas field off the Egyptian coast, the 30 trillion cubic feet (849 billion cubic meter) Zohr field. If the estimates are correct, the Zohr gas field would be significantly larger than Israel’s biggest field, Leviathan, which is approximately 621 b.cu.m.

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While Eni company executives celebrated the find as a potential solution for Egypt’s gas needs for decades to come, Israeli officials and energy analysts viewed the discovery through a more cautionary lens.

National Infrastructure, Energy and Water Minister Yuval Steinitz stressed the need to urgently finalize the country’s natural gas compromise outline, to end the freeze that has overtaken the sector at home.

Following the December announcement of outgoing Antitrust Commissioner David Gilo – who completed his term on Monday – that he intended to review whether the market dominance of Delek Group and Noble Energy constituted an illegal “restrictive agreement,” nearly eight months of negotiations among the companies and government officials ensued. Although the cabinet approved a compromise outline two weeks ago, numerous bureaucratic and regulatory hurdles are still preventing the outline from receiving final authorization. As a result, development has yet to begin at the Leviathan and several smaller gas reservoirs.

On Sunday night, Steinitz described Israel as “standing still and taking its time” with the outline, while “the world is changing before our eyes.” Such procrastination, he explained, could impact Israel’s export possibilities.

Among such export opportunities are the possible sales of gas from Israel to Egypt. Last year, the natural gas companies operating in Israel’s waters signed letters of intent for the provision of 71 b.cu.m. of Tamar reservoir gas to Spanish Union Fenosa’s Egyptian liquefied natural gas plant and the supply of 105 b.cu.m. of Leviathan gas to the British Gas LNG plant, also in Egypt. Another letter of intent was signed with Jordan’s National Electric Power Company for the provision of 45 b.cu.m. of gas from the Leviathan reservoir.

“People ignore timetables. Timetables are crucial,” Miki Korner, a private energy consultant and former chief economist for the Natural Gas Authority, told The Jerusalem Post on Monday.

Korner slammed members of the opposition, as well as Economy Minister Arye Deri – who refused to activate a legal clause that would enable the document’s final approval – for “causing economic damage to Israel.”

“Not all of the opportunities right now will be available within a few years,” he continued. “It’s obvious. We are losing income to the country, we are losing the possibility to sell. Ten years from now it will not be worth anything. Waiting and waiting will do harm.”

Dr. Amit Mor, CEO of the EcoEnergy Financial and Strategic Consulting firm, spoke with a similar sense of urgency.

“The window of opportunity is closing,” Mor told the Post. “The international energy market is a very dynamic one. Companies and countries should seize opportunities once they prevail. The development of the natural gas sector in Israel was rapid for domestic use, but failed to guarantee national security in terms of developing additional gas supply sources.”

Describing the current situation in which Israel depends on one Tamar field for its gas as “irresponsible,” Mor stressed that the development of Leviathan, as well as the smaller Karish and Tanin fields, are high priority both in terms of national energy security and in terms of the potential public revenues to be generated through taxation.

“It is a necessity for the government to approve as soon as possible the natural gas outline, to enable the development of the fields and not miss additional opportunities for regional cooperation and supply of gas, such as to Jordan and possibly in the future also to Turkey,” Mor said.

Looking at the new Egyptian field specifically, Korner explained that the Zohr reservoir is located 200 kilometers away from the Egyptian coast and contains clay rather than sand – conditions that could make development last at least six years.

“It’s great that they found it, but they still have to develop it,” he said. “We don’t know what will be the permeability and how many wells you will need to do it.”

Both Korner and Mor acknowledged, however, that Egypt already has a number of other undeveloped reservoirs – about 2,000 b.cu.m. worth of gas, according to Korner. While the development of such projects had been frozen in recent years, about a year ago the major companies holding these concessions began resuming plans there, Mor said.

Despite both the Zohr find and the existence of these other reservoirs, the two experts agreed that Israel has not entirely lost its chance to export gas to Egypt.

“Technically, Israel still has a chance also in Egypt. We are still ahead of them in time, because of all the checks that will take a year or two there, which we have already done in Israel,” Korner said. “But we have to start immediately.”

Particularly at the Union Fenosa LNG facility, with which the Tamar partners signed a letter of intent, the need for gas is crucial and could occur quickly, he explained.

“Egypt also needs gas for itself,” Korner said.

He warned, however, that after the first two or three years, export prices could begin to slip, meaning that Israel’s tax revenue from such exports could also drop. Ultimately, Korner stressed that although the potential for export to Egypt has become smaller, Israel must push to achieve this possibility, as well as export to Jordan and replace Israel’s own coal supply with gas resources.

In Mor’s opinion, it may still be too early to truly know how the discovery of the Egyptian Zohr field will impact Israeli exports.

“Nevertheless, if the Israeli government is not decisive in finalizing the domestic regulation on gas development and antitrust issues, Israel might miss those regional opportunities for natural gas cooperation and supply,” he said. “It’s time for the government to approve the outline for natural gas development and allow the developers to find markets for the gas because otherwise, the gas will remain undeveloped at sea.”


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