Israel Leviathan’s Development at a major Impasse

Platform

Four and a half years after its discovery, Leviathan’s development is at a major impasse.
Despite the promise of Levant Basin gas, the reality is that Noble is the only international company interested in investing in Israel’s hydrocarbon resources. Leviathan may be the largest discovery of its kind in the last decade, but it pales in comparison to larger reservoirs like Kazakhstan’s Karachaganak, which holds an estimated 48 Tcf of gas.

Israel simply does not have enough gas to legitimize taking on the risk. As former Royal Dutch Shell president John Hofmeister recently said, “They [companies] look at whether they will be able to stay in the country for decades. The truth is that there is simply not enough gas in Israel to attract these companies.”

A report recently prepared by Dutch auditing company SGS for Israel’s Ministry of Energy calculated that Leviathan only has 16.5 Tcf, 20% less than originally estimated. If proven, this reduced volume could translate into a $30 billion cut in revenue, making it even less attractive to investors, and generating less profit for Israel.

Leviathan’s development has been held up by a slew of regulatory issues.
Due to continuous costly bureaucratic hurdles, Australia’s Woodside terminated in May 2014 its MOU with the Leviathan partnership to acquire 25% of the field for $2.5 Bn.

As a result of regulatory uncertainty, Noble announced that it was freezing investment in Leviathan. After months of negotiations between the Leviathan partnership and the Government, no agreement has been signed.

Egypt & Jordan have already begun importing LNG cargoes and intend to buy tens more over the next few years. Cyprus & Egypt signed an energy cooperation agreement in February that calls for Cyprus to pipe 8 Bcm/Yr of gas from its Aphrodite field. Jordan also has plans to sign an agreement to purchase 150 Mcf/D of gas from Cyprus.

Europe remains committed to diversifying its own energy supply, but there will likely be no need for piped gas from Leviathan once the Southern Gas Corridor begins transmitting supplies from Azerbaijan.

Four and a half years after its initial discovery, Leviathan’s development is at a major impasse. Any production before 2020 is highly unlikely.