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War puts Israel’s big plans for gas exploration in jeopardy

The Ades contract with Pertamina will begin in the second half of 2024 Reuters/Amir Cohen
Ades' contract with Pertamina of Indonesia will begin in the second half of 2024
  • Licences awarded to operators despite conflict
  • Exploration likely to be postponed
  • Instability delays upgrade of export infrastructure

Oil markets may have shrugged off Israel’s war with Hamas, but a month into the Gaza conflict the intense violence is affecting Israel’s plans to become a regional hub for exporting natural gas, according to analysts.

Last week the government awarded 12 new exploration and development licences to six operators.

One group comprises Italian energy giant Eni, South Korea-owned Dana Petroleum, and Ratio Energies of Israel.

The second comprises British multinational BP, Azerbaijan’s state firm Socar, and Israel’s NewMed Energy.

The offshore tender was the fourth bidding process for natural gas exploration in Israel’s economic waters.

The firms will explore the marine territories surrounding Israel’s main gas fields – Leviathan, which contains an estimated 22 trillion cubic feet of gas, and Tamar, which has around 13 trillion cubic feet of gas.

Tamar is owned by Chevron, Israel’s Isramco, and Abu Dhabi’s Mubadala and produces mainly for the domestic market. Leviathan is operated by Chevron, which owns nearly 40 percent of the field. Its production is mostly sent to Egypt. In addition, Greece’s Energean is developing the newer Karish and Tanin fields.

But the analysts said that conflict is likely to impact the projects.

“The war will have negative impacts on investment in the EastMed gas sector,” said Siamak Adibi, a Singapore-based principal consultant and head of the Middle East team at oil and gas consultancy Facts Global Energy (FGE). 

According to FGE, the final investment decision for further Leviathan gas production expansion (Phase 1B) will be delayed for at least one year.

That analysis is shared by Rystad Energy, a business intelligence company in Dubai. The crisis in Gaza could see other offshore fields in the region shuttered, which would have ramifications for anticipated exploration plans off Lebanon, Rystad said in a research note.

Over the past 20 years, Israel has transformed from a net fossil fuel importer to a regional natural gas exporter. The production from Tamar, Leviathan and Karish has not only changed Israel’s energy mix but allowed the country to become a significant exporter.

The country produced nearly 22 billion cubic metres (bcm) of gas last year, of which nine bcm was exported to Egypt and Jordan.

Security shutdown

On October 9, two days after the violence erupted, Israel said it was temporarily shutting down Tamar for security reasons. This partially reduced, but not entirely interrupted, flows to Egypt. 

Aditya Saraswat, head of Middle East upstream research at Rystad, told AGBI that the medium-term intention is that Israel’s production will almost double to 45 bcm by 2030, while domestic demand grows to about 15-16 bcm. 

“The Levant basin has become a hotspot for gas exploration,” said Saraswat. “Anything around the Leviathan or Tamar area is very promising, and the recent awards are very close to these fields.”

But an escalation in the Gaza conflict may seriously delay Israel’s gas expansion plans, Saraswat warned.

“The awarded blocks border Israeli maritime limits: the Gaza Strip in the South and Lebanon in the North. From both sides, you have some disturbances going on,” Saraswat said. He added that the parties to the new bid round have not yet signed contracts.

Deals on hold

Other deals are also paused or may collapse, such as the Adnoc/BP acquisition of a 50 percent stake in NewMed Energy, the analysts warned. Before the war started this transaction was facing challenges, mainly related to asset valuation, Adibi said.

“BP maintains its optimism about the deal despite the conflict, but I don’t think there would be a high chance to see the deal getting finalised anytime soon, at least until we see a sort of political settlement in the region, and then things may go back to negotiation,” Adibi said.

Ori Anolik, assistant spokesperson at Israel’s ministry of energy and infrastructure, told AGBI that the procedure of awarding licenses continues. However, the ministry will consider the difficulty of scheduling exploration activities.

“We are confident that the fundamentals of the Israeli natural gas industry are strong, and we look forward to working with the winning companies in accordance with the work programs they submitted as part of their bids,” Anolik said.

Export routes

In a 2020 report, the US Geological Survey estimated undiscovered, technically recoverable resources of 286.2 trillion cubic feet of conventional gas in the eastern Mediterranean area.

But a lack of exporting infrastructure limits Israel’s gas expansion ambitions, analysts said. Beyond supplying its two main clients, Egypt and Jordan, Israel exports gas through Egypt’s LNG terminals at Idku and Damietta on the Mediterranean coast.

In June last year, Israel, Egypt, and the European Union signed a memorandum of understanding that could see Israel pumping its gas to Europe, as the EU looks to replace Russian gas sources.

As Egypt’s gas production declines due to ageing fields such as the Zohr, it has spare capacity to accept more gas from Israel, said analysts, but this solution is only for the short and medium term.

Chevron has been working on plans to add pipelines to increase gas flows to Egypt and was considering plans of a floating LNG facility, while Israel also had plans to connect to Europe via East-Med pipeline.

Investors will not be in a hurry to start this capital-intensive infrastructure project now. “Israel’s security issues surrounding gas facilities, with potential attacks by Hezbollah or Hamas, will repel them for a while,” FGE’s Siamak Adibi said.

Ori Anolik, assistant spokesperson at Israel’s ministry of energy and infrastructure, told AGBI that discussions around additional export routes and export permits were ongoing, including establishing the Nitzana pipeline, which has already been approved. “We are working to make sure that the conditions are in place to allow for Final Investment Decisions to be taken,” he said.

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