At a time when energy companies are positioning themselves for a lower-carbon world by investing heavily in natural gas, it would seem relatively easy to sell them on developing reserves of the cleaner burning fuel. Unless those reserves are in the territorial waters of Israel.
Nearly a decade after natural gas was discovered off its coast, Israel is still struggling to enlist foreign firms to explore its vast deposits in the Mediterranean Sea, in part because oil and gas companies are wary of alienating Arab countries in which they have long done business. So far only one foreign company, Noble Energy of Houston, is operating there. And last year, when Israel launched its first-ever auction of offshore blocks, it attracted just two bidders — a small Greek company and a group from India.
This history is what brought Shay Luvshis to Houston. Luvshis, 38, is Israel’s energy consul, sent to recruit American and international oil and gas firms to explore Israeli waters in the Eastern Mediterranean Sea. About year after opening an office here, the Energy Ministry’s first outside of Israel, Luvshis says he and other officials have held advanced talks with Exxon Mobil, the French oil major Total and the Australian oil and gas company Woodside Petroleum, among others.
Israel has long been the odd-man out, energy-wise, in the Middle East, home to some of the world’s biggest oil producers, and the subject of wisecracks about ending up in one of the few places in the region without oil. All that changed in 2009, when Noble Energy discovered natural gas in the Tamar field about 50 miles off the Israeli coast, in waters more than 5,000 feet deep. Noble followed that in 2010 with another discovery in the Leviathan field, southwest of Tamar.
Israel and Luvshis are now searching for the next Noble or, more precisely, the next several Nobles, a search that runs headlong into geopolitics. One large oil company, which Luvshis declined to name, refused to take a meeting with him out of fear of damaging its relations with Arab countries.
Middle East politics, however, have not been the only hurdle for Israel’s efforts to attract international energy companies. Israel’s regulatory framework for developing the gas fields is new and untested, as Noble’s experience illustrated. Amid public uproar and litigation over who should benefit from Israel’s s natural resources, the Israeli government eventually forced Noble to reduce its ownership stake and banned the Houston producer from participating in bidding for more offshore blocks to promote competition.
Noble earlier this year sold 7.5 percent of its holdings in the Tamar project, reducing its stake to 35 percent. It holds approximately 40 percent in the Leviathan development.
“Israel has a pretty tough sell in the current environment,” said Jim Krane, a Rice University fellow for energy studies in the Middle East. “It’s resolved now, but Noble was pretty unhappy. A lot of companies that might have been attracted to Israel were turned off by that.”
A Noble story
Noble acquired its first offshore block in the Gulf of Mexico in the late 1960s. As it grew over the years, it sought to extend its success to international waters and found willing partners in Israel, including its partner in the Tamar and Leviathan field, the Delek Group, one of Israel’s largest oil and gas companies.
Noble made small natural gas discoveries in 1999 and 2000, but it took 10 more years of advances in seismic imaging technologies before Noble found the vast reserves of the Tamar and Leviathan beneath salt formations. Those finds combine for more than 30 trillion cubic feet of gas, enough to power Israel for decades.
For Noble, the fields will equate to almost 20 percent of its global production after the $4 billion Leviathan project comes online at the end of 2019. Noble’s Leviathan platform is presently under construction.
“It’s really the emergence of a new deepwater basin,” said Keith Elliott, Noble’s senior vice president for the Eastern Mediterranean.
But with the big discoveries came a lot of attention from politicians, regulators and the Israeli public. Suddenly, Israel was rich in energy, and for the first time, had to wrestle with how it would develop the resource and who would benefit from it. Politicians and citizens criticized the terms of the government’s contract with Noble as too generous, arguing that they essentially gave the Houston company a monopoly on the production of natural gas. Some called for the government to nationalize the oil and gas industry.
Ultimately, Noble agreed to less generous terms, divested some of its holdings, and moved forward with its development of Leviathan. Noble can continue to expand within its existing offshore blocks in Israeli waters as well as explore other sections of the Mediterranean under the jurisdiction of other nations, such as Egypt and Cyprus. The region looks promising.
Luvshis, who worked eight years in Economy Ministry before becoming Israel’s first energy consul last year, has pushed ahead with efforts to convince oil and gas companies to invest in Israel’s nascent industry. Those efforts received a boost in June, when Israel and the U.S. Energy Department agreed to establish a joint Center of Excellence in Energy, Engineering and Water Technology, to develop, share and disseminate technologies in areas important to the energy industry, including fossil fuels, cybersecurity and energy storage and efficiency.
This collaboration with the U.S. industry should be bolstered by a sturdy, certain regulatory regime put in place for the development of Israel’s energy resources, Luvshis said. Israeli officials believe another 75 trillion cubic feet of gas is waiting to be discovered in its territorial waters, as well as several billion barrels of crude oil.
Israel plans to put another 20 or so offshore blocks up for auction in November. It has also sweetened the deal for foreign energy companies by allowing them to export more of the natural gas they produce in Israel.
Earlier this year, for example, Delek and Noble signed a $15 billion deal to sell natural gas to Egypt. Noble also has its eye of two liquefied natural gas processing plants in Egypt, which would allow Noble to export more of the natural gas produced in the region.
In addition, Israel is developing the $7 billion Eastern Mediterranean gas pipeline, nicknamed East Med, that would run to Western Europe through Cyprus and Greece. Ultimately, it could reduce the European dependence on natural gas from Russia, a major concern given the West’s tense relations with the government of President Vladmir Putin.
“It’s a very ambitious project,” Luvshis said. “A couple years ago when we talked about this project, people thought we were hallucinating because it sounds like a dream.”
For now, Luvshis sees it as a long-term prospect, but added that the time could be ripe for U.S. oil and gas companies to look overseas with commodity markets healthy again.
Source: Houston Chronicle