Israel’s elections this year have an issue that hasn’t been on the agenda previously: what to do with the natural gas bonanza it will start to reap in coming years. Platts’ Jerusalem correspondent Neal Sandler reviews the issue in this week’s Oilgram News column, Regulation & The Environment.
One of the first tasks that will face the new Israeli government after elections on January 22 is to decide on a natural gas export policy. Israeli Prime Minister Benjamin Netanyahu has made every effort to keep the controversial issue out of the campaign and delay a decision until a new government is formed.
With nearly 1 trillion cubic meters in estimated reserves, the issue has become a political hot potato and even the prime minister’s pro-business Likud party is not united on the issue.
Explorers are lobbying for quick approval of exports, claiming their ambitious development plans for the huge Leviathan field hinge on being able to sell the gas abroad.
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Two opposition parties have taken stands against exporting gas, at least in the near term. Environmental groups and even senior government officials argue that it is far too early to decide on an export policy before the exact size of the country’s offshore reserves are known.
In addition, the failure of several recent offshore wells — including Mira and Sarah — has led to calls that the volume of gas to be allowed for export should be substantially reduced.
In late August a government-appointed panel recommended allocating 500 Bcm for exports and 450 Bcm to meet the needs for local demand through 2040.
At the time, the report was viewed as a victory for the exploration companies and would enable them to proceed with plans to build an LNG terminal to export part of Israel’s newly found gas wealth.
Unlike the recommendations from a previous panel in 2011 on a new tax regime for the gas and oil sector, which were adopted within a matter of weeks, the government is taking its time on what has turned out to be a far more divisive issue.
The delays in taking up the matter led the head of the US’ Noble Energy, Charles Davidson, in late November to call on the Israeli government to finalize its export policy.
Noble has a lot at stake. The Houston-based company has been responsible for the largest discoveries in recent years offshore Israel.
It holds the stakes in both the Leviathan and Tamar fields. Davidson warned that the company “cannot make any decisions about how to go forward on any of these projects until we know the appropriate level of exports that are going to be allowed.”
He added that the government-appointed panel’s recommendations struck a fair balance between reserving resources for Israel and also allowing monetization of gas resources in the form of exports.
Noble and its Israeli partner Delek Group have the backing of Energy and Water Minister Uzi Landau and Finance Minister Yuval Steinitz.
Senior Finance Ministry technocrats believe there is no need to guarantee more than 25 years of local demand and are keen to guarantee billions of dollars in future tax revenues.
But the highly popular Environmental Protection Minister Gilad Erdan doesn’t buy that position and even disputes the figures on which the panel based its recommendations.
Israel’s Commerce and Industry Minister Shalom Simhon wants Israel to guarantee local gas reserves for at least 50 years, or more than double the period the government panel recommended.
He said the government should approve no more than the export of 350 Bcm of gas at this stage, which would be the minimum amount necessary for justifying the construction of an LNG terminal. Simhon also believes that the committee vastly underestimated the potential gas consumption by local industry.
Israel began switching over to gas in 2004 and by 2010 local demand reached 5.2 Bcm.
Israel’s Gas Authority is predicting demand will reach 10 Bcm in 2016, climb to 12.5 Bcm in 2020 and then reach 18 Bcm by 2030. Many experts believe that these projections are overly conservative.
The absence of a government decision has not deterred the main players in the Israeli offshore gas sector from moving ahead with their plans, though.
On December 3, Noble, Delek and Ratio, the three partners in the Leviathan field, announced an agreement with Woodside Petroleum Ltd whereby the Australian company will acquire a 30% interest in the gas field for $2.5 billion. The agreement was conditional on Israeli government approval of LNG exports.
Israel is experiencing an unprecedented wave of offshore exploration. A record $2 billion is expected to be invested in exploration in the next two years. Further discoveries will only increase the pressure on the Israeli government to approve additional volumes of gas for export.
But in the meantime, the exploration companies will have to wait patiently until the Israeli elections are over and a new government is formed, before they can count on whether they will be given the green light to proceed with the huge investments that will turn the country into a gas exporter.
—Neal Sandler in Jerusalem