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Israel Discovers Mega Natural Gas Fields

January 19th 2009

Energy / Environment - LNG Tanker

Israel took a step towards energy independence with the discovery of natural gas deposits off its shores near the Haifa on January 17. According to Noble Energy, there is an “inconceivable” amount of natural gas in three offshore reserves at its Tamar 1 well – the largest find in the company’s history. The find is estimated at 88 billion cubic meters. Currently, Israel depends on coal and gas to fuel its energy needs. In Israel there are plans to reduce dependence on coal from 60 percent of its energy set-up, while increasing natural gas from 30 percent to 40-45 percent. The plan is to increase alternative energy use to 10 percent by 2020.

The discovery of the natural gas field 90 km. offshore from Haifa, known as Tamar, was made by a US-Israel consortium including the Delek Group, through its subsidiaries Delek Drilling and Avner Oil Exploration, Isramco Negev 2, Dor Gas Exploration and US oil operator Noble Energy Inc.

"If the Tamar site opposite the Haifa coast succeeds in producing the significant quantities of natural gas predicted, we are talking about a revolution which will have an impact on the Israeli economy for the coming generations," said Dan Halman, CEO of Halman-Aldubi Group. "The vast reservoir is poised to bring down electricity prices, reduce the country's dependence on gas from foreign countries, in particular from Egypt, and thereby turn Israel from a gas importer into a gas exporter."

Despite the historic find, Israel may continue to depend on pursuing deals with British Gas to supply gas from the Gaza Marine site near the Gaza Strip as well as continuing its 20-year deal with Egypt.

Eco-Energy CEO Dr. Amit Mor said that despite the find, Israel cannot afford to abandon efforts to diversify its energy sources, including more environmentally unfriendly solutions like coal. Regarding coal, the Israeli Infrastructure ministry has been planning Ashkelon's Project D, a coal-powered plant set for launch in 2014-15, much to the dismay of environmentalists. In light of the Tamar discovery off Haifa announced on January 17, there were calls from major environmental organizations to scrap the plan for Project D. Of the three major sources of Israeli energy, coal, natural gas and renewables, coal is by far the most polluting. However, the ministry has since reaffirmed the need for Project D. According to the ministry, the discovery is not enough by itself and cannot replace other necessary projects for the energy market like Project D in Ashkelon.

According to Eco-Energy's assessments, demand for natural gas will total 200-250 b.cu.m. from now until 2030. Tamar's potential, while very high, is only about a third of that.

"What is really important, over and above this discovery," Mor argued, "is importing liquefied natural gas [LNG]. We must diversify our energy sources to maintain energy security. The Yam Thetis field [off the coast of Ashkelon] is almost depleted and one possibility is to use the platform and field at Yam Thetis to offload the LNG and store it."

LNG can be purchased from many regions all over the world, such as North Africa, the Persian Gulf, Australia and others, according to Mor. He also said that Project D, though necessary, could be built using technology that would reduce its pollution by 15-20%. "We urge the government to build the plant using ultra-supercritical technology. Right now, it's slated to be a plant using supercritial technology. Upgrading it would make it 15-20% more efficient and reduce its emissions by 15-20%," he said. Such a plant would cost another $500 million to build.

Israel is currently facing a severe natural gas shortage because Egypt is only providing about half of the 1.7-2 b.cu.m./yr it is supposed to, Mor said. Finding new energy sources is very important to reduce dependence on one problematic source, he added.

"The new discovery, assuming it is verified in the coming weeks, is a great boost to the economy, but it won't alleviate the energy crisis that we will be experiencing for the next 4-5 years," he concluded.

"If the Tamar site opposite the Haifa coast succeeds in producing the significant quantities of natural gas predicted, we are talking about a revolution which will have an impact on the Israeli economy for the coming generations," said Dan Halman, CEO of Halman-Aldubi Group. "The vast reservoir is poised to bring down electricity prices, reduce the country's dependence on gas from foreign countries, in particular from Egypt, and thereby turn Israel from a gas importer into a gas exporter."

Yoav Burgan, analyst at Leader Capital Markets, believes in the possibility of long-term deals resulting from the Tamar well which could generate a potential value of $15.5 billion.

However Halman cautioned that despite the optimism it was too early to celebrate.

"Big celebrations are still premature," said Halman. "It needs to be remembered that the drilling is complicated and production possibilities are not yet completely clear. In addition, gas transportation is a much more complex and expensive process compared with oil transportation."

Similarly Yuval Zehira, head of the research department at IBI Investment House, raised doubts over the economic viability of the project.

"For the time being it remains very difficult to assess the profitability of the project given that we don't have figures regarding the initial cost of drilling, production costs, the time it will take to sell the gas, and at what price, and the effect of competition with Egyptian gas," said Zehira. "At this point it seems that the project is more of a strategic asset than an economic one."

The Tamar prospect, located under 5,500 of water, was drilled to a total depth of about 15,000 feet. Production testing at Tamar will be performed after the well is completed.

Gal Reiter, analyst at Clal Finance Batucha estimated that the production tests would cost about $20 million and should be completed in about three weeks.

Noble Energy, which operates the well with a 36% working interest, and its Israeli partners said that they might keep the rig to drill two additional wells in the basin.

"This is one of the most significant prospects that we have ever tested and appears to be the largest discovery in the company's history," said Charles D. Davidson, CEO and chairman of Noble Energy Inc.

Following the announcement of the discovery, shares of Delek Drilling, which holds 15.6% of the Tamar prospect, jumped 41.7%, and shares of Avner Oil Exploration, which holds another 15.6%, surged 21.4%. Both companies are owned by billionaire Yitzhak Tshuva. Shares of fuel exploration company Isramco, which owns 28.7%, leaped 123.8%.

Martin Barillas is editor of www.energypublisher.com and www.speroforum.com.


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