September 2016, Vol. 243, No. 9


Compromise Allows Big Spending on Israel’s Natural Gas Sector

A Pipeline & Gas Journal Staff Report

Israel’s decision to adopt changes to guidelines under which U.S. developers operate in its massive Leviathan natural gas field will likely lead to the largest infrastructure project the tiny nation has ever seen.

The move clears the way for Houston-based Noble Energy’s planned $5 billion natural gas project that would encompass wells connected to an offshore platform, which would initially produce 1.2 Bcf/d of natural gas, though the output could be increased to nearly double that amount.

The project, as it stands now, includes development of an undersea pipeline, running to Israel’s coast to serve the domestic market, along with Jordan and the West Bank, and a 20-km pipeline linking Israel and Jordan’s transmission networks. There also are plans for eight production wells and a production-and-treatment platform.

The new agreement was approved in June after the Israeli Supreme Court ruled it unconstitutional because it prevented Israel from making significant regulatory changes for at least 10 years.

At the time, David Stover, the chairman of Noble, called the ruling that blocked his company and Israeli partner Delek Group from pumping natural gas from offshore deposits, “disappointing.” The two companies were prepared to spend up to $10 billion on gas sector infrastructure.

Prime Minister Benjamin Netanyahu had emphatically supported the initial deal struck between his government and a consortium of gas developers as a path to Israeli energy independence, new regional alliances and billions of dollars in revenue. Critics claimed the deal gave too much profit to corporations at the public’s expense.

With the changes in place, however, Noble and Delek believe they will be able to begin production at the 535 Bcm Leviathan field by the end of 2019. To that end, Delek Group subsidiaries Delek Drilling and Avner Oil and Gas announced in late May the developers are expected to make a final decision by the end of the year on the massive investment in the offshore field.

Looking ahead, the largest potential destinations for exports are Egypt and Turkey, but that would likely involve massive investment in marine pipelines. Turkish and Israeli officials have discussed the possibility of a pipeline through Turkey, which would serve that country and link the existing pipeline network with Europe. In June, Israeli diplomatic sources told the Associated Press anticipated a gas deal with Turkey was imminent.

Speaking at Rice University’s Baker Institute in Houston last fall Israeli Energy Minister Yuval Steinitz said his country was close to ushering in an era that will encourage development and investments in its energy sector.

At the time, he told PG&J that along the way his country had “created some obstacles and difficulties” for itself concerning development of the Leviathan and Tamir (254 Bcm) offshore natural gas fields. “I want to pave the way for speedy, rapid development,” he said.

Noble owns a 40% stake in the Leviathan project and has entered into agreements to sell 100 MMcf/d of natural gas volumes in Israel.

Jordan, in fact, has imported over totaled 66 Bcf of LNG since the opening of the country’s first LNG terminal in 2015, a government official said Aug. 2. Currently, 82 percent of Jordan’s electricity is generated using the imported LNG, which has decreased Jordan’s energy bill by reducing its reliance on diesel and heavy fuel to generate power, said Haidar Gammaz, spokesperson of the Ministry of Energy and Mineral Resources.

“The opening of the terminal has played a significant role in reducing energy spending in Jordan, and more shipments of LNG are to come to Jordan in the future as the country has signed several deals,” Gammaz said. Jordan has received about 20 shipments of LNG since the terminal opened. Since the start of LNG imports, Jordan’s use of gas has contributed to a decrease in electricity costs by 25-30% and could decrease even further if the gas pipeline is constructed.

Genel Looks to Turkey to Develop Kurdish Natural Gas Fields

Producer-operator Genel Energy is banking on a joint agreement with Turkey to jointly develop natural gas fields in the Kurdistan Regional Government (KRG), a move that could help the Turkish capital of Ankara reduce its dependence on Russia.

The deal, struck in April, would provide a new gas source for Turkey, which has struggled to find alternatives after relations with Russia deteriorated following an incident in which the Turkish air force shot down a Russian warplane late in 2015.

Genel, which owns 80% of the Bina Bawi and Miran fields, is discussing selling a stake in its holding to TEC, a joint venture that includes state-owned Turkish Petroleum (TPAO), according to Reuters.

The partnership, which would involve construction of a pipeline and storage facilities to connect the field to Turkey, would strengthen bonds between Ankara and KRG, two neighbors already at war with the Islamic State of Iraq.

The company wants to finalize the agreement with the unnamed partner by year’s end, Chief Executive Murat Özgül told the company’s annual meeting in London.

Genel plans to export up to 20 Bcf/y of natural gas from the fields, located 185 miles from Turkey. The fields hold about 11 Tcf. Genel expects the fields could begin production in early 2020. Turkey consumes about 50 Bcf/y natural gas and over half that amount is supplied by Russia, according to Genel.

IHS Says Risk Premium Expected Back Amid Middle East Instability

Shifting power in the Middle East and reordered regional geopolitics, along with wars in Syria and Yemen, and against the Islamic State, combined with the balancing of supply and demand in oil markets later this year, will likely return a “risk premium” to oil prices in 2017, according to a report by IHS.

“For the next U.S. president, no foreign policy choice will be more important than deciding whether and how to end this reordered stalemate of conflict,” said Carlos Pascual, senior vice president, IHS Energy. “Middle East instability drives international terrorism, the flow of refugees and adds a risk premium to the price of oil.”

The report, titled Reordered Stalemate in the Middle East, said a global oversupply of 1-1.5 MMbpd throughout 2015 negated the impact of political risk. As a result, oil prices did not rise despite Islamic State attacks in France, Egypt, Turkey, the United States and Belgium. However, with global oil demand growth expected to catch up with or outstrip supply, especially if disruptions continue over the next six to 12 months, a risk premium could well return as a factor on the price of oil.

The degree by which the new risk premium affects prices will depend on developments in the Middle East, as well as other key producing areas displaying potential for supply disruption, such as Venezuela and Nigeria.

The report details several developments that are simultaneously reordering the regional stalemate while preserving the state of persistent conflict and instability.

Other key findings of the report:

  • Russia is re-engaged and once more a regional player in the Middle East. “Russia’s partial withdrawal of troops from Syria, after forcing a ceasefire that cemented Russian-driven territorial gains for Syrian President Bashar al-Assad, left Russian President Vladimir Putin tactically triumphant – regionally, globally and at home.”
  • Iran has entrenched further. “Iran needs Assad in power, even if Russia supports his orderly transition. Iran will seek to establish an even stronger presence in Syria and Iraq and against the Islamic State. But in practice, neither Russia nor Iran is playing for a solution to the region’s conflicts. Each seeks tactical advantage in a regional power play. As neither will really win or lose against the other, we don’t expect a Russian-Iranian confrontation.”
  • Iraq frays further. “Low oil prices have put Iraq into an enormous fiscal crisis, which is forcing Baghdad to seek economic and governance reforms that reduce transfers to regional provinces. Reform has become synonymous with imposed austerity on Iraq’s provinces. For now, the imperative to fight the Islamic State and the need for some central military authority may defer a faster descent to looser federalization. Eventually, Iraq will need to build a new consensus on governance or break.”

Intecsea Proposes $1.5 Billion Iran-Oman Pipeline

Dutch offshore engineering firm Intecsea submitted a proposal to take part in the construction of a proposed $1.5 billion Iran-Oman gas pipeline project. Iranian news agency Mehr quoted Mohammad Akbarzadeh, the company project manager, as saying Intecsea was interested in providing “special engineering and technical services” on the project.

Based on a memorandum of understanding between Korea Gas Corp and National Iranian Gas, the Iran-Oman gas pipeline will stretch 400 km and comprise an onshore and an offshore section. The onshore section will extend 200 km from Rudan to Mobarak Mount in Iran’s southern Hormozgan province, while the seabed section will be between Iran and Oman’s Sohar port. According to the Oman Observer, the groundwork for laying the subsea pipeline began in April.

“Construction of the Iran-Oman pipeline will make Iran’s ambition to become an LNG exporter come true,” Akbarzadeh said. “With the realization of this pipeline, Iran will be able to use the Qalhat LNG plant, which has the capacity to liquefy 10.4 mtpa of LNG, in Oman as the Islamic Republic does not have one.”

Intecsea had earlier undertaken construction of some offshore pipelines in Iran’s South Pars gas field.

The Korea Gas Company (Kogas) and National Iranian Gas MOI called for construction of two other major pipelines within the Islamic Republic. Studies on the project were done a decade ago. Iran and Oman agreed to push for the pipelines’ completion in 2013 but efforts fell apart in the wake of U.S. sanctions on Iran.

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