Israel sees energy independence in natural gas offshore fields

Mar 05, 2009 01:00 AM

For the first time since the country was founded in 1948, the reality is sinking in that Israel may be able to take care of its own energy needs with a natural gas field off the coast of Haifa.
Noble Energy discovered a field that may hold 5 tcf of gas, enough to supply half of Israel's demand for the next 20 years, said Amit Mor, chief executive officer of financial consultants Eco Energy. Delek Group and Avner Oil Exploration said they won 12 three-year licenses to explore sites adjacent to the find. Israel doubled the offshore area licensed for exploration since 2003.

Gas may flow from Noble's Tamar find within three years, reducing the need for oil and coal imports from as far away as Mexico, Norway and Russia. Shares of Avner Oil and Delek, partners with Houston-based Noble, more than doubled in Tel Aviv trading since the field was announced in January.
"The new find deeply decreases Israel's dependence" on energy imports, Mor said. The benefit to companies such as Israel's ElectricCorp., which can burn either natural gas or oil to run power stations, "of not needing an alternative energy source sums up to tens of billions of dollars in the next 20 years," he said.

Israel, which imports 85 % of its energy, has explored for resources since the 1950s with little success. About 400 onshore and 25 offshore wells have been drilled, according to the Ministry of Infrastructure. The average cost onshore is $ 5 mm per hole, while offshore it's $ 60 mm, the ministry said.
The country's only domestic gas source now, located offshore Ashkelon in the south, will dry up early in the next decade, the Infrastructure Ministry forecasts. That field, with reserves of about 848 bn cf, was the biggest find in the country before Tamar.

BG Group, the Reading, England-based oil and gas explorer, ended negotiations to sell Israel reserves off the Gaza Strip's Mediterranean coast last year, citing differences over price. Talks were previously halted on concern the Hamas Islamic movement that controls Gaza would get some of the funds because the Palestinian Authority owns 10 % of the rights.
Shares of the partners in the Tamar prospect have surged, pushing the benchmark TA-100 Index 5.4 % higher since the start of the year, compared with a 21 % drop in the MSCI World Index. Noble is down about 10 % along with the broader market.

Shares surge
Israeli billionaire Yitzhak Tshuva's Delek, which owns 16 % of the find through a unit, has more than doubled in Tel Aviv trading this year, after being the second-worst performer in the benchmark in 2008. Isramco Negev 2, with a 29 % interest, has quadrupled since the discovery announcement, while Avner Oil, with about 16 %, has added 55 %. The MSCI World Energy Index dropped 13 %.
Delek Drilling, the energy explorer owned by Delek, and Avner were awarded the licenses to explore at the Ruth and Alon sites near Tamar. The awards bring the total of Israel's offshore area that has been licensed for oil and gas exploration to more than 50 %, according to the Infrastructure Ministry. It was 23 % in 2003.

"They finally have a valuable asset in their hands," said Yuval Zehira, the head of research at Israel Brokerage & Investments in Tel Aviv. Estimates of 5 tcf of gas are almost four times Israel's proven reserves of 1.28 tcf at the end of 2007, according to the US Energy Information Administration. The discovery may not eliminate Israel's energy imports and needs more study before its true value is known.
"It's still too early to figure out what is out there as it takes a long time to understand what is the true magnitude of the discovery," said Gal Luft, the executive director of the Potomac, Maryland-based Institute for the Analysis of Global Security. "The initial signs are encouraging but my experience is that until you really know the extent of the resource, you can't make forecasts."

Israel has relied on imports since it became a state in 1948. Concerns about supplies haven't disappeared since 1973, when Arab states led by Egypt and Syria attacked Israel on Yom Kippur, the Jewish Day of Atonement. In response to US support of Israel during the war, Arab members of the Organization of Petroleum Exporting Countries embargoed sales to the US.
During Israel's 22-day conflict with Hamas two months ago, Iran called on Arab nations to stop oil supplies to countries that supported the Jewish state. No embargoes followed.

More important for Israel
"It's always good news to find oil or gas, but it's much more important for Israel because of its political situation in the Middle East," said Francis Perrin, an analyst at the Paris-based Arab Petroleum Research Centre. "It's very important to be as self-sufficient as possible."
"Having our own Israeli gas resources is something that we have dreamed of for generations," Prime Minister Ehud Olmert said on Feb. 26 following a meeting with Noble Chief Executive Officer Charles Davidson.

During the past five years, Israel has moved to increase its use of cleaner-burning natural gas, which amounts to 15 % of local energy consumption. The country expects gas to provide 40 % of its energy needs in the next decade, with 50 % coming from coal and 10 % from renewable sources such as solar and wind.
Israel signed a supply accord with Egypt in 2005 to boost imports, and deliveries of gas started in July last year.

Egypt contract
Egypt, which now supplies Israel with 60 bn cf of gas a year under a 15-year contract, will eventually deliver almost 1 tcf, or about 20 % of current estimates of what lies at the Tamar prospect. Egyptian parliamentary opposition to the terms of the country's export deals, particularly to the Israeli accord, prompted Oil Minister Sameh Fahmy to agree last year to renegotiate all gas contracts and hold off signing new deals until 2010.
"We never want to depend on one source only," Israeli Petroleum Commissioner Yaakov Mimran said. "This finding gives us some breathing room in order to rethink our energy strategy."

While Noble's Davidson said it will take a "few months" to clarify the size of the Tamar deposit, the company in February raised its estimate from the initially announced 3 tcf. More gas may lie beneath the seabed, said Moshe Shahal, who was minister of energy until 1996.
"The finding strengthens the idea that there probably are more energy resources in our area," Shahal said.

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