How The Future Of Leviathan Is Looking After The Latest Developments in Egypt?

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Noble Energy is getting closer to tapping into one of its biggest assets – the Leviathan field located in offshore Israel. The company has been trying to develop this massive gas field, but have faced significant regulatory hurdles.

Slow progress

Noble Energy has been the only major U.S. oil company that has agreed to explore Israel’s vast energy reserves. Its U.S. based peers, on the other hand, have largely steered clear from the country due to its poor regulatory framework that does not adequately protect the interests of foreign investors. The decades-old conflict between Israel and Arab countries, including the leading OPEC members, has also not helped. But Noble Energy took the risk and ended up making one of the biggest gas finds in the region. The Leviathan gas field holds 16.5 to 22 trillion cubic feet of gas reserves. The field alone could transform Noble as well as Israel into one of the biggest suppliers of gas in the region by targeting the energy starved nations of Jordan and Egypt as well as Southern Europe.

However, Noble Energy and its partners have faced stiff opposition from Israeli regulators and lawmakers due to anti-trust concerns. But last week, Israel’s parliament voted in favor of a plan that will allow Noble Energy  to develop Leviathan as well as two smaller fields. The next key hurdle to overcome is that the lawmakers have to agree to transfer the power from the Economy Ministry, which has been overseeing the deal, to the cabinet. Once this obstacle is overcome, the government and Noble Energy can proceed with the framework which has been previously opposed by the regulators. In short, although Noble Energy has certainly moved one step closer towards pumping gas from Leviathan, significant barriers still remain.

Leviathan was supposed to begin operations by 2018, but with the current slow pace of development, production from the field might not begin in the current decade. The delays are dampening the future prospects of Leviathan. The field was supposed to bring substantial financial benefits to its operators as well as Israel on top of the geopolitical advantages coming from exports. Jordan and Egypt were supposed to be two of the prominent buyers. But the delays have forced Jordan to halt negotiations while Egypt, which has signed three letters of intent for imports and was supposed to be the biggest buyer of Leviathan gas, has been looking for other suppliers. Following Eni’s massive discovery in offshore Egypt, it appears that the option of selling gas to Egypt is now off the table.

The supergiant discovery

About two weeks ago, Italy’s Eni said that it discovered a “supergiant” field 120-miles off the coast of Egypt which could hold 30 trillion cubic feet of gas reserves, making this the largest gas find of the last decade and the biggest gas reserve in the Mediterranean, overshadowing Leviathan. The single largest potential buyer of Leviathan gas might not need it at all as Zohr alone would be enough to cover nearly all of the natural gas needs of the most populous Arab nation for decades.

Eni, the largest foreign hydrocarbon producer in Egypt with decades of experience in the country, already has the required infrastructure in place which will allow it to bring Zohr online over the next few years. Both, the Egyptian government and Eni are eager to bring the field online as quickly as possible. Last week, the Italian company said that it could begin production from as early as 2017. That’s bad news for Israel as well as Noble Energy.

Fortunately, there is no shortage of buyers in the Mediterranean as well as Europe which has been trying to reduce its reliance on Russian gas. Noble Energy and its partners have also said that the demand for Leviathan gas remains strong. But unfortunately, export of Israeli gas to most of the other major buyers, besides Egypt, is going to be far more expensive.

For instance, Turkey appears to be a prospective candidate. Like Egypt, Turkey also has ever growing energy needs and a booming natural gas demand. However, in order to ship the gas directly to Turkey through an offshore pipeline, the fuel must first pass through Cyprus. And given the history of conflict between Turkey and Cyprus, that pipeline may never get an approval from Cypriot authorities.

Another option could be to construct a pipeline to Cyprus. From here, Israel and Cyprus could work together on figuring out a way to ship the gas from the Leviathan as well as the Aphrodite field, which is located off the southern coast of Cyprus, directly to Europe via pipelines or through construction of a liquefaction facility.

Either way, shipments to Turkey or Europe will require years of planning and development, not to mention the substantial regulatory and geopolitical hurdles, a large chunk of which will come from Israel itself.

Conclusion

The uncertainty regarding the future of Leviathan field has been weighing on Noble Energy. While on one hand, the company has received the nod from Israeli parliament, on the other hand, Egypt, which was touted as the major buyer of Leviathan gas, has discovered its own reserves. As a result, the future prospects of Leviathan are as uncertain as they were before, if not more so.

Meanwhile, Israel has moved astonishingly slow as compared to others in North America, Australia, Russia and Qatar who are racing ahead to capture the natural gas export markets. The global energy landscape is also changing quickly, with the plunge in oil prices, M&A activity and Egypt’s discovery. In addition to this, Iran could also emerge as a major supplier of gas following the success of nuclear negotiations, given its South Pars gas field, home of the world’s second largest reserves, has recently become fully operational. In this quickly changing environment, thanks to the persistent delays, Leviathan will become less and less relevant.

 

Author: Samir Haddad et Al.