Friday, June 4, 2010

Natural Exports from Israel Possible

By David Wainer
June 4 (Bloomberg) -- Israel is on the path to exporting energy for the first time in its 62-year history after Noble Energy Inc. and partners said their offshore discoveries in the country may hold twice as much natural gas as the U.K.
Nobel, the Houston-based operator of the Leviathan block, said yesterday the area may have 16 trillion cubic feet of gas, as it also raised its estimate for the nearby Tamar field to 8.4 trillion cubic feet. Nobel said all its areas in the eastern Mediterranean may hold as much as 30 trillion cubic feet.
“This has the potential to turn Israel into a key regional gas player, competing with the likes of Egypt,” Guil Bashan, an analyst at IBI in Tel Aviv, said by phone. “This is also a major plus for the economy and for the partners operating the licenses, which can produce value by becoming major exporters.”
Israel, which has been in several wars since it was founded in 1948, has been dependent on oil and coal imports from as far away as Mexico and Norway and has bought gas from Egypt in the past decade. Now, with the Tamar find last year expected to fulfill its gas demand for the next two decades, the country may be able to ship the commodity to Asia and Europe.
“The option for exporting natural gas has become much more realistic,” Asaf Bartfeld, chief executive officer of Delek Group Ltd., one of the block’s partners, said in an interview yesterday. “We may be able to supply the European market and the Far East where demand is highest. Though, of course, at this point, we are waiting to drill and to try and confirm the gas.”
Infrastructure Needs
Still, additional gas would take up to a decade and “billions of dollars” in investments to produce since there’s no infrastructure to liquefy gas, said Amit Mor, head of Eco Energy Ltd, an Israeli investor. The country is also unlikely to build pipelines through Turkey and other neighbors because of political tension, especially after the diplomatic fallout following the May 31 raid of a flotilla carrying aid to Gaza that left nine dead, Mor said.
“The results of the survey are very encouraging and Israel has the potential to become an energy exporter, fortifying its geopolitical stance,” said Mor. “But we need to be very patient now and wait for additional finds.”
While the International Energy Agency expects an “acute glut” of gas during the next five years, production will then need to rise to offset a 50 percent drop in output from existing fields by 2030, Chief Economist Fatih Birol said in November. Executive Director Nobuo Tanaka said in March that investment of $5 trillion will be needed in the gas industry by 2030.
Noble, which has prospects from Texas to West Africa, said it plans to drill at Leviathan later this year. The company is partner in the fields with Delek Drilling LP and Avner Oil & Gas Ltd., both controlled by billionaire Isaac Tshuva’s Delek Group. Ratio Oil Exploration 1992 LP holds 15 percent in Leviathan.
“In addition to the increase in estimated Tamar resources, we have identified significant additional drilling opportunities nearby which, if successful, could position Israel as a potential energy exporter in future years,” Charles Davidson, Noble’s chief executive, said in a statement.
Delek shares jumped 13 percent to 867.50 shekels, valuing the company at 9.9 billion shekels ($2.6 billion). Tshuva, who also owns the New York Plaza Hotel, holds about 64 percent.
The Levant Basin, where Tamar is located and which stretches the length of Israel and Lebanon, may hold 227 trillion cubic feet of gas, the U.S. Geological Survey said in a report released April 8, its first review of the area. That compares with Egypt’s 77 trillion cubic feet of reserves in 2008 and the U.K.’s 12 trillion cubic feet, according to BP Plc’s statistical survey. Reserves are resources that are anticipated to be commercially produced.
Economic Strength
The gas exploration may in coming years add to the strength of Israel’s economy, which grew 3.3 percent in the first quarter. The central bank has raised its interest rate by 1 percentage point to 1.5 percent since August as growth revived. Exports account for about 45 percent of gross domestic product as companies such as Israel Chemicals Ltd., which extracts minerals from the Dead Sea to make fertilizer, get more than 90 percent of sale from exports.
Israel has also moved to increase its use of cleaner burning gas, which amounts to 15 percent of local energy consumption. It expects gas to provide 40 percent of its energy needs in the next decade.
The government hailed the discovery and said it will now study how to collect some of the potential revenue.
“There’s no question that natural resources in these sorts of quantities are a major asset,” Finance Minister Yuval Steinitz said in an e-mail. “These are discoveries of very meaningful proportions. The discoveries only strengthen the need to establish a committee which will examine the royalties and taxing system which will ultimately make their way into the government’s coffers.”
--Editors: Jonas Bergman, Will Kennedy

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