Overview
The discovery of significant oil and gas reserves in Israel has transformed the country’s energy fortunes. Despite the discoveries, however, it is likely to take a number of years for gas production to reflect the size of the reserves. The fields discovered are in deep water and existing infrastructure is minimal, making it an expensive and potentially time-consuming process to bring the fields into production.
The Mari-B field, discovered in 2000, was the first to produce gas in significant volumes for Israel’s domestic market. Multiple discoveries have been made since then, increasing the country’s proven reserves and providing it with increased energy security.
The Tamar field was discovered in 2009 and brought online in March 2013. Tamar, which is tied back to the Mari-B platform and uses existing infrastructure to send gas to shore, has proven reserves of 283 billion cubic metres.
The discovery of the Leviathan field in 2010, with estimated reserves of 620 bcm, provided Israel with long-term energy security and the potential to generate revenue from exports. Production from the field is expected to start in 2017 or 2018.
There are challenges to the production of Israeli gas. Woodside Energy and Edison have pulled out because of unfavourable economics. The cost of producing hydrocarbons is likely to be high, given the lack of infrastructure and water depths involved. Domestic prices for gas are low and taxes are considered high, at around 65% including upfront royalties.
The Israeli government has also imposed a 40% limit on the amount of gas that can be exported – ensuring the country benefits from the resource, but scuppering plans for companies to recover high costs by exporting the gas as LNG to high-priced Asian markets.
This has not deterred all companies, however. Noble Energy brought the Tamar field into production in 2013 to supply the Israeli domestic market, and is also planning to export gas to Israel’s neighbours.
Noble has received approval from the Israeli government to supply Palestinian Power Generation Co. with 4.75 bcm of Leviathan gas over 20 years. The company also made agreements with Jordanian companies Arab Potash and Jordan Bromine to supply 1.9 bcm of gas for 15 years. This will require the construction of pipeline infrastructure linking these countries. The partners have also signed a memorandum of understanding with Union Fenosa Gas to pipe around 4.5 bcm/y to Egypt to liquefy and export through the company’s Damietta LNG plant.
These agreements place the cost of Israeli gas exports at around $250-270 per thousand cubic metres. Noble has also proposed building a pipeline linking the Leviathan field with BG Group’s Idku LNG plant in Egypt. This would be a cost-effective way of accessing the LNG market.
The discoveries mean Israel is no longer reliant on gas from Egypt, which it imported between 2009 and 2012 through the Aris-Ashkelon pipeline. Imports through the Hadera LNG FSRU were only a temporary measure until Israel increased its gas supply from its domestic resources.
Page updated: 14/08/2014