There is no reason for Noble Energy to begin investing billions in Leviathan before the government decides where it wants the gas to go.
25 November 13 19:16, Amiram Barkat
Noble Energy Inc.'s (NYSE: NBL) muscle-flexing against the government over the development of the Leviathan gas field is an interesting and surprising change. For 13 years, the Houston-based company has kept a low profile and has been very careful not to upset anyone, especially in the government.
The polite Texas company has bitten its tongue more than once, and gotten up the next morning as if nothing had happened. The government has repeatedly changed the game: it passed the Sheshinksi law; it has intervened in signed gas delivery contracts; opened investigations; and threatened to impose controls - but the development of the Tamar gas field was not stopped for even a moment. The field, which was hooked up to the coast in April, used a unique method, the opposite of conventional methods.
In other countries, a government first approves regulations and establishes an infrastructure, after which an energy exploration company signs gas sale contracts with customers, secures financing to develop a field, and develops it. In Israel, this process works backwards.
Instead of the government providing certainty that it will allow developers to raise capital and invest in the development of gas fields, in Israel, the developers first invest billions of dollars without a guarantee of anything. They did not do this out of Zionism, but in the clear assurance that the Tamar gas field came with a guaranteed market. The banks agreed to lend billions of dollars for the project knowing that the Israeli economy was desperate for natural gas from Tamar and that it had no alternative.
Now it is the turn of the Americans to change the rules of the game. What happened at Tamar stays at Tamar. The Leviathan gas field will be developed in accordance with international norms; there will be no "it will be all right" and "trust me". There is no reason for Noble Energy to begin investing billions before the government decides where it wants the gas to go. If Prime Minister's Office director general Harel Locker failed to promote on time approval of the gas terminal construction plan, that is not Noble Energy's problem.
Decision makers at Israeli government ministries should realize that the present postponement of at least one year in Leviathan's development could be just the first postponement. The ministers should know that it's very easy to quantify the financial damage caused to the economy by the government's inability to keep its promises on time. The damage will be paid for, at the voting booth, if not in the courts.
US shale gas boom hits Israel
The US shale gas boom has hit Israel. Natural gas exploration companies in Israel did not have had to wait for the "Financial Times" to know that the global liquefied natural gas (LNG) market is in big trouble. "The global market completely shut down years ago," a developer said today.
Uncertainty about LNG exports to Asia is one of the reasons why Leviathan's rights holders - Noble Energy, Delek Group Ltd. (TASE: DLEKG), and Ratio Oil Exploration (1992) LP (TASE:RATI.L) - have postponed grandiose plans to build monstrous LNG plants at a cost of $10 billion or more. After visits to China, India, and South Korea, Delek discovered six months ago (followed by Ratio and Noble Energy) that the most interesting natural gas market is in Israel's backyard.
In the past few months, more modest plans have been drawn up for the export of Israeli gas. First build a pipeline to Turkey, followed by pipelines to Jordan and Egypt. Customers - Turkish energy companies, Egyptian LNG facilities, and Jordanian manufacturers - will be required to build gas pipelines at their expense, almost as far as the gas field. There will be no phenomenal returns, but the return on investment will be quick and risk will be low. The LNG export option has not been taken off the table, but it's a second priority.
In the past couple of months, the LNG market has actually woken up. Large gas customers who had been sitting on the fence waiting for prices to fall have returned to the market. On the supply side, grandiose export projects, especially in Australia, have been cancelled. The market is discovering the US shale gas demon is not so terrible after all.
Published by Globes [online], Israel business news - www.globes-online.com - on November 25, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013
Link to source: http://www.globes.co.il/serveen/globes/docview.asp?did=1000896799
