EIB to look into LNG terminal when project on the table
“We are here for the signature of big investment in SMEs that is the key for growth and employment in Cyprus like many other countries in the EU”, he added.
FAMAGUSTA GAZETTE
• Saturday, 20 September, 2014
European Investment Bank President Werner Hoyer has said that the EIB will look into investing in an LNG project once a project is on the table.
Replying to a question on reports that the EIB will be funding an LNG terminal on the island, Hoyer said that “I never heard about it”.
“We are here for the signature of big investment in SMEs that is the key for growth and employment in Cyprus like many other countries in the EU”, he added.
“We are aware that the exploration in the gas fields is under way” he said, adding however that “there are no results”.
Hoyer expressed the hope that “there will be positive results”.
“If that translates into an investment project presented to us we will check it and discuss it but there is no commitment whatsoever until there is a project on the table”. This, he said, “is not the case yet”. — (KYPE)
Lebanon has so far sat idly by as a new economic-security landscape emerges in the Eastern Mediterranean, which is teeming with gas projects and increasingly submitting to “security arrangements” that accompany such developments. The latter are inherently linked to the broader NATO structure and the interests it represents. Despite this, there is no satisfying answer in Lebanon regarding the reason for the delays in exploiting its prospective natural gas resources.
Lebanon is located in the heart of the Levant basin, where seismic surveys indicate the presence of huge oil and gas reserves, a large part of which were confirmed by subsequent discoveries in the past two decades, from Egypt to the coasts of the Levant, including in the waters off Cyprus. Work is underway at full speed in the Eastern Mediterranean to complete projects and conclude energy deals, while Turkey, Cyprus, and Israel are in the process of building a security regime to protect those projects.
Lebanon will soon have to deal with this as a fait accompli, as it falls behind and fails to impose itself as a regional player in this area. This is the most important conclusion drawn by a conference on oil resources in the Middle East organized by the Lebanese Armed Forces Research and Strategic Studies Center over the past two days, in collaboration with the Lebanese Petroleum Administration and the United Nations Development Program.
Fait accompli
“The expected quantities (of oil and gas) are relatively small, compared to those discovered in the Arabian Gulf, Russia, and the Caspian Sea, but they are enough to make a significant impact on the energy security of Mediterranean countries, and contribute to a lesser extent to Europe's energy security,” said Director of the Research and Strategic Studies Center Gen. Khaled Hamada. Hamada pointed out that Israel had already begun commercial gas production, while Cyprus has started exploration in more than one location.
He said that both countries have prepared related projects and treaties, and built together with Turkey a “security structure” (as part of the broader NATO structure) to protect gas installations and pipelines. This structure requires building marine military facilities and deploying military vessels. This is all taking place as Lebanon has postponed licensing rounds for oil and gas exploration and production for the fifth time, while the country has failed to demarcate its Exclusive Economic Zone (EEZ) in its territorial waters in accordance with international legal procedures, according to Hamada.
In a conversation with Al-Akhbar, Hamada said that Lebanon’s participation in these regional projects, including a project for a Liquefied Natural Gas (LNG) plant in Cyprus, or a project for a pipeline linking Israel to Turkey via Cyprus, is “completely out of the question.” Therefore, Hamada warns that more delays in Lebanon’s efforts to implement gas projects will force it to deal with these projects and security arrangements as a fait accompli down the road.
Hamada pointed out that Ankara wants to “change the rules of the game, and deploy forces away from its territories.” This is in line with what Rabih al-Yaghi, advisor to parliament on oil and gas affairs, had to say: that Turkey is trying to expand in the eastern basin through northern Cyprus, with a view to reduce its dependence on oil imports from Iran and gas imports from Russia. Yaghi also said that Turkey is seeking to build a network of onshore and offshore gas pipelines, to act as an energy transit hub between East and West.
Although no “direct friction” exists between Lebanon and Israel in oil projects yet, Hamada said, oil companies operating in the EEZs opposite Lebanon and Cyprus will be the same, meaning that companies could export Lebanese gas via Cyprus through pipelines or LNG terminals. Hamada warned that these companies could face political pressures to impose restrictions or conditions, with the hub in Cyprus imposing quotas or levies on Lebanese gas, if not rejecting Lebanese gas entirely.
In this regard, Hamada cites Egypt’s experience with energy companies. He said that the latter extracted gas beyond the quantities allowed or agreed upon, while threatening the Egyptian government with heavy fines in the event of non-delivery. As a result, gas wells have been depleted and some even collapsed. From this standpoint, Hamada warned against linking the economy to oil installations, so that the government does not end up having to buy gas to avoid paying fines stipulated in the contracts.
Meanwhile, the chief operating officer at PetroLeb, Naji Abi Aad, cautioned that a distinction should be made between “unexplored resources and confirmed reserves.” Abi Aad explained that the first is an imprecise estimate or figure, like the one put forward by the US Geological Survey as an estimate of unexplored resources in the Eastern Mediterranean basin. The figure was 122 trillion cubic feet (tcf) of gas (which would be enough to meet the demand of the Eastern Mediterranean for 50 years, according to Yaghi), including 15 to 35 tcf in the Lebanese EEZ alone.
Abi Aad explained that the large differences in the estimates of various companies for unexplored resources produced by seismic surveys was normal, but said that these figures must not form the basis for national energy policies that should first confirm the existence of reserves by drilling. Abi Aad cites the “disastrous” Egyptian experience as an example, saying that Egypt once exported gas through the Arab pipeline but now has a deficit in gas supplies, and that it has paid fines to the companies operating LNG plants when the latter could not operate because of the lack of adequate quantities of gas. Abi Aad said the reason behind the Egyptian “catastrophe” is that plans were made on the basis of “potential” rather than “confirmed” gas reserves.
According to Wissam Chbat, head of the Geology and Geophysics Unit at the Petroleum Administration, Lebanon would need no more than 0.2 tcf of gas annually if its power plants and other facilities along the coast operate on gas. In comparison, the volume of gas in marine block 1 is estimated at 14.9 tcf, and 13.7 and 15.2 tcf in blocks 4 and 9 respectively.
On the other hand, Yaghi, arguing that gas is the cheapest fuel for manufacturing, as well as the cheapest and the cleanest for consumption, said that the priority for energy policies should be to “prepare the domestic market to become energy self-sufficient, rather than import fuels,” and to allocate the surplus to exportation, like Israel, which pursues this policy.
Yaghi believes that in the event gas is used as the primary fuel for existing and new power plants to bridge the deficit in the power supply, and in the event all plants switch to gas, and a public transport system using electric energy is built, “the entire demand in Lebanon in 2020 and beyond would be between 0.8 and 1 tcf per year.” By the same token, that is, in order to maximize the use of gas locally, Yaghi believes that it would be more economically worthwhile to grant exploration and production contracts in the marine blocks with two blocks in the first round as a maximum, as the gradual licensing would strengthen the negotiating position of the Lebanese state in subsequent rounds, when potential estimates turn into confirmed reserves.
Lebanon must act now
Lebanon could become a regional producer of gas, “if the gas is used optimally and at the right time,” Abi Aad said, pointing out that the gas produced cannot be stored, and thus has to be exported out of necessity rather than choice, while attention should be paid to the cost of gas production compared to market prices. According to Abi Aad, building gas-fired power plants, public transport that runs on electricity, and petrochemical and aluminum plants that consume a lot of energy are among the most best possible uses of gas domestically.
Concerning export options, Abi Aad said that the best option is to feed Egyptian LNG plants or the Arab gas pipeline (which originates in Egypt and goes to Jordan, Syria, and Turkey, and then the EU). The second option would be to build gas pipelines or LNG plants.
Abi Aad cautions that the regional gas market is relatively small and saturated with supply, bearing in mind that contract durations are usually between 20 and 25 years. As for international markets, they too will have surplus supplies in the coming years, with the shale gas or unconventional gas revolution, Abi Aad said, explaining that this would drive prices down, and predicting that supply would more than double in the coming years. In other words, the value of gas today is higher than it would be in the future, according to Abi Aad, who called for acting immediately to produce and market gas from Lebanon.
The security of the oil industry
The security of the oil industry was the main theme of the remarks made by the chairperson of the Petroleum Administration Nasser Hoteit, who said that collaboration between the administration and the army was necessary for exploration, drilling, and transport in the sector. Hoteit said the army bore important responsibilities, starting with the protection of offshore marine installations, and not ending with logistics, where the army is responsible for monitoring and protecting personnel and equipment during their movement between the shore and the offshore installations, as well as protecting public safety and the environment.
Hoteit called for forming a crisis management cell where the army would be represented, where the army would cooperate with oil and gas companies in dealing with incidents, oil leaks, fires, or explosions, even though exploration and drilling contract formats usually oblige companies to deal with such situations. Hoteit then called on the Ministry of Industry to specify places to develop service stations for marine installations, refineries, and gas plants, and also underscored the need to give the Ministry of Telecommunications an important role in “transporting and storing the huge amount of data from oil and reservoirs to data centers at the Petroleum Administration” for optimal utilization.
It is worth noting that the Research and Strategic Studies Center will prepare jointly with the Petroleum Administration recommendations that will be submitted to the Ministry of Energy and Water, the Council of Ministers, the Presidency of the Republic, and other political bodies.
This article is an edited translation from the Arabic Edition.
The members of the new National Geostrategic Council and the Energy Council have been appointed by President Anastasiades
PRESIDENT Nicos Anastasiades has appointed the members of the new National Geostrategic Council and the Energy Council.
Heading the National Geostrategic Council, tasked with assessing regional and international politics and advising the president on matters of foreign policy, will be Michalis Attalides, rector of the Nicosia University.
The Energy Council will lead by Dr. Andreas Poullikkas, professor of Power Systems at the Cyprus University of Technology (TEPAK).
Other members of the Geostrategic council are: Petros Zarounas international relations expert; Kalliopi Agapiou Iosifidou assistant professor of political science at the University of Cyprus and holder of the Jean Monnet Chair for 2001; Antonis Stylianou lecturer of law and head of the law department at Nicosia University; Elena Stavrou doctorate in Middle Eastern studies; Christos Iakovou head of the Cyprus Centre for Studies; Nicos Moudouros–doctorate in Turkish and Middle Eastern Studies; Theodoros Tsakiris assistant professor in geopolitics and hydrocarbons at the University of Nicosia; Constantinos Adamides assistant professor of international studies at the University of Nicosia; Niyazi Kizilyurek assistant professor of Turkish Studies at the University of Cyprus; Marios Efthimiopoulos doctorate in strategic policy; Costas Constantinou professor of international studies and head of the sociological and political studies at the University of Cyprus; Christodoulos Pelagias doctorate in political studies and law; Michalis Kontos political scientist and international relations expert; Manouk Yildidjian, Turkish studies expert.
To the Energy Council, the president appointed; Giorgos Georgiou assistant professor and head of the Centre for Sustainable Energy at the University of Cyprus; Odysseas Christou assistant professor of governance, international law and international relations at the University of Cyprus; Marios Valiantis head of the centre for green energy of the University of Nicosia; Avraam Georgiou senior lecturer of Computer Science and Information Systems at TEPAK- and Georgios Boustras dean of the business administration department at the European University.
Anastasiades also appointed ex officio members to the Energy Council; Eleni Vasiliadou head of the Natural Gas Public Company; Mike Efthimiou advisor to the president in matters of hydrocarbons; Paris Papanastasiou advisor to the energy minister in matters of hydrocarbons.
Anastasiades also appointed former Defence minister Fotis Fotiou as Commissioner for Overseas and Religious Groups, a post previously taken up by Katie Clerides who resigned citing family reasons.
Much of the increased trade is in effect being conducted under the radar. The construction of a major gas pipeline, on the other hand, would definitely not escape public attention.
In a recent speech in Ankara, introducing the Mediterranean Energy Perspectives – Turkey Report, Turkish Energy Minister Taner Yildiz announced that no energy projects with Israel would be pursued until there was permanent peace in the region. The minister noted that Turkey never talked about the economic feasibility of a project without first considering its political feasibility. Ankara had repeatedly condemned Israel for its actions in the renewed conflict in Gaza in the summer of 2014. The latest comments made by the Turkish Energy Minister may lead to the collapse of the proposed Israel-Turkey gas pipeline project linking Israel’s Leviathan gas field with the Turkish port of Ceyhan. Speaking earlier on 4 August, Yildiz had declared that without a ceasefire and stability in the region “the blood of innocent infants and mothers” and not gas would flow through the pipeline.
Hopes and expectations have been raised that the discovery of considerable gas reserves in Cypriot and Israeli offshore fields in the eastern Mediterranean would contribute to peace and stability in the area. Aykan Erdemir, an opposition deputy in the Turkish parliament, has referred to a possible gas pipeline connecting Israeli and also possibly Cypriot fields with Turkey as a “peace pipeline” which would help resolve the Cyprus problem and facilitate Turkey’s entry to the European Union (EU). In practice, it would seem that this optimism is misplaced. Even though an Israel-Turkey gas pipeline would be commercially viable and has the backing of powerful business lobbies, political opposition in Turkey, Israel and also Cyprus appears to be blocking the realisation of the energy project.
Israel’s huge Leviathan gas field, situated 130 kilometres west of the port of Haifa, has estimated reserves of 620 billion cubic metres (bcm). The American company Noble Energy is the operator of the field working together with Israeli partners. The aim is to commence production at the field by late 2017. Following a decision made by the Israeli cabinet in June 2013, 40 per cent of gas produced at the field may be exported. The first phase of development of the field is expected to cost $6 billion. A November 2014 deadline has been setby the Israeli government for development plans to be submitted by the companies working at Leviathan. The Netanyahu administration will be looking for details with regard to long-term gas sales agreements which would help fund production. The failure to produce a comprehensive development plan may lead to delays. Given recent events, it does not seem possible that the partners working at Leviathan will be able to include definite plans by the November 2014 deadline for the construction of a gas pipeline connecting the field with Ceyhan.
In March 2014 it was reported that two Turkish companies, Zorlu Holding and Turcas Petrol, had participated in a tender for the possible construction of a 7-10 bcm/y gas pipeline to link Leviathan with the Turkish mainland. The proposed 500 kilometre pipeline would cost about $3.5 billion. Zorlu Holding has stakes in several power plants in Israel and its chairman, Ahmet Nazif Zorlu, is known to have close links with the governing Justice and Freedom Party (AKP) in Turkey. Turcas Petrol had submitted a joint bid with the German energy company RWE. In April 2014 Turcas Petrol had notified the Istanbul Stock Exchange that it had initiated non-binding talks with Enerjisa (a joint venture of the powerful Sabanci Group in Turkey and the German energy utility E.ON) to buy gas produced at Leviathan for sale on the Turkish market. Influential Turkish and German energy businesses have thus expressed definite interest in the proposed Israel-Turkey gas pipeline and are lobbying for it. However, in spite of this interest, there have apparently been no further developments with regard to the tender for the pipeline’s construction.
It seems that the further deterioration in Turkish-Israeli relations in recent months is responsible for the lack of progress on the proposed gas pipeline. A deal had appeared to be in the making between Ankara and Jerusalem over the amount to be paid to a fund to compensate the families of the victims of the Israeli commando raid on the Mavi Marmara – a vessel which had attempted to break the naval blockade of Gaza in May 2010. Under American pressure Prime Minister Netanyahu had earlier expressed his regret for the lives lost in the boarding of the Mavi Marmara. A possible rapprochement between Israel and Turkey, though, is no longer on the cards following Ankara’s harsh condemnation of the most recent Israeli assault against Hamas in the Gaza Strip.
The Israeli and Cypriot governments have supported plans to construct the East Mediterranean Gas Pipeline. This would entail the laying of an underwater pipeline connecting Cyprus with Crete and then with the Greek mainland which could transport 8 bcm/y of Cypriot and Israeli gas to Europe. In October 2013 the European Commission designated the planned pipeline a project of common interest which could be eligible for financial support. A link could be made with the envisaged IGI-Poseidon pipeline to enable gas to be delivered to Italy via the Ionian Sea. However, because of the high costs - $20-30 billion – and the technical challenges of laying a pipeline in very deep waters, the East Mediterranean Gas pipeline will probably not be built.
The administration in Nicosia has also backed plans to construct a liquefied natural gas (LNG) terminal at Vasilikos in Cyprus. This facility could process gas produced from Cypriot and Israeli gas fields in the eastern Mediterranean which could then be shipped out by tanker to markets in Europe and Asia. This would be another expensive option – about $10 billion to liquefy 14 bcm each year - and is appearing less commercially attractive as gas prices are falling on world markets. The Israelis are preferring other options for the possible export of gas from the Leviathan field.
In January 2014 a deal was concluded with the Palestine Power Generation Company (PPGC) to export annually 4.75 bcm of gas from Leviathan over a twenty year period to a future power in Jenin in the West Bank. In September 2014 a letter of intent was signed with Jordan’s National Electric Power Company (NEPCO) for the sale of 45 bcm of gas from Leviathan over a fifteen year period. A final gas purchase and sales agreement is expected to be completed before the end of the year. Also, a non-binding agreement with BG was signed in June 2014. This would entail the delivery by a new underwater pipeline of 7 bcm per annum over a fifteen year period from the Leviathan field to the currently idle LNG plant at Idku in Egypt. Once processed at the BG-run Egyptian liquefaction facility, the Israeli gas could then be sent by tanker to outside markets.
Even if the agreements with NEPCO and BG are finalised, there would still be enough gas produced at Leviathan to fill the proposed Israel-Turkey pipeline. In spite of worsening political relations, trade turnover between Israel and Turkeyhas increased from $3.5 billion in 2012 to $4.9 billion in 2013. However, it is extremely unlikely that the prospects of further expanding commercial ties will enable the Turkish and Israeli governments in the foreseeable future to put aside their differences and agree to the construction of the gas pipeline. Much of the increased trade is in effect being conducted under the radar. The construction of a major gas pipeline, on the other hand, would definitely not escape public attention. Given the probable continuing tensions between Ankara and Jerusalem over Gaza, AKP officials would find it extremely difficult to convince their supporters that the time is opportune to proceed with such a large scale energy project.
In the current political climate the Netanyahu administration would also oppose the pipeline’s construction. Gas is seen as a strategic good in Israel. This was clearly evident in the lively debates over how much of Israel’s gas production should be allocated to the domestic market and what volumes could be exported. Israeli officials will thus be extremely reluctant to commit large volumes of gas to a state which is seen as hostile.
Moreover, without a resolution of the Cyprus problem, the government in Nicosia would also continue to block the construction of an Israel-Turkey gas pipeline which would have to be routed through the exclusive economic zone of Cyprus to avoid Syrian waters. The announcement of the resumption of talks between the Greek and Turkish Cypriot communities over the future of the divided island was greeted with much fanfare in February 2014, but negotiations remain stalled and there is little prospect of any immediate progress. Without permission from Nicosia, the proposed gas pipeline is a non-starter.
Energy companies like to assume that the commercial viability of a project will provide sufficient grounds for them to convince governments to lend support to particular projects. This does not appear to be the case with regard to the prospects for an Israel-Turkey gas pipeline. This is in spite of the fact that Turkey is seeking to diversify its gas imports in order to avoid increasing energy dependence on Russia – an issue of more pressing concern given the tensions over Ukraine. The channelling of Israeli gas to the Turkish mainland could also in effect enable more gas from other sources to be transported to Europe via Turkish territory and make Turkey an increasingly important gas transit state – a goal for policymakers in Ankara.
Ironically, perhaps, the Palestinians, Jordanians and Egyptians appear more willing to receive gas from the Leviathan field in spite of escalating tensions between Israel and Hamas over Gaza. Local interest in exploiting Israeli gas for domestic consumption or re-export may therefore contribute to regional stability in the longer term. A “peace pipeline” between Israel and Turkey may not be realised, but gas reserves in the eastern Mediterranean may still play an important role in enabling Israel to improve relations with its Arab neighbours.
The November 2014 deadline for the submission of plans for the development of the Leviathan field may have to be extended by the Israeli government in order for the partners working at Leviathan to tie up deals with NEPCO and BG. This would enable more time for additional gas volumes from the Leviathan field to be committed to outside markets. However, given the continuing problems in Israeli-Turkish relations and the stalemate over Cyprus, the construction of a gas pipeline from the Leviathan field to Ceyhan in the foreseeable future seems exceedingly unlikely.
Ενδιαφέρον για την κατασκευή του τερματικού και την ανοικοδόμηση της Αμμοχώστου, εφόσον λυθεί το κυπριακό, εκφράζει, σύμφωνα με πληροφορίες, η Ευρωπαϊκή Τράπεζα Επενδύσεων (ΕΤΕπ), κλιμάκιο της οποίας βρίσκεται στην Κύπρο για υπογραφή συμφωνιών για κρατικές εγγυήσεις στις Τράπεζες Κύπρου και Ελληνική.
O Πρόεδρος Αναστασίαδης συναντήθηκε με τον Πρόεδρο της Ευρωπαϊκής Τράπεζας Επενδύσεων Βέρνερ Χόγιερ, το πρωί στο Προεδρικό Μέγαρο και οι πληροφορίες αναφέρουν ότι η συζήτηση περιστράφηκε γύρω από θέματα ενεργείας. Η ΕΤΕπ ενδιαφέρεται να χρηματοδοτήσει ακόμη και όλη την κατασκευή του τερματικού στο Βασιλικό διότι η Ευρώπη ανησυχεί ιδιαίτερα εξαιτίας της ουκρανικής κρίσης. Η ΕΤΕπ θεώρει ότι η χρηματοδότηση για την κατασκευή του τερματικού δεν θα είναι μονό επένδυση για την Κύπρο αλλά για ολόκληρη της ΕΕ.
Οι ίδιες πληροφορίες αναφέρουν, ότι ο πρόεδρος της ΕΤΕπ επανέλαβε τη θέση ότι σε περίπτωση λύσης του κυπριακού, η τράπεζα είναι έτοιμη να βοηθήσει στις προσπάθειες ανοικοδόμησης της Αμμοχώστου.
Η συνάντηση Αναστασιάδη-Χόγιερ, άρχισε λίγο μετά τις 9.00πμ, διήρκεσε περίπου 45 λεπτά και ολοκληρώθηκε χωρίς δηλώσεις.
- See more at: http://www.sigmalive.com/news/local/162829#sthash.WT57z69V.sAZRACZb.dpuf
Noble Energy, Inc. announced on 3 September the execution of a non-binding Letter of Intent(LOI) to supply natural gas from the Leviathan field, offshore Israel, to the National Electric Power Company Ltd. (NEPCO) of Jordan. Under terms of the LOI, Noble Energy and the Leviathan partners will supply a base gross quantity of 1.6 trillion cubic feet (Tcf) of natural gas from the Leviathan field over a 15-year term. Sales volumes under the agreement are anticipated to begin at a rate of 300 million cubic feet per day. Delivery will occur via pipeline. The price for the natural gas is still to be determined and will be linked to Brent oil prices. The deal, expected to be signed in 2014, still needs regulatory approval from both Jordan and Israel.Noble Energy operates the Leviathan field with a 39.66 percent working interest. Delek Drilling, Avner Oil Exploration and Ratio Oil Exploration (1992) Limited Partnership hold respectively 39.66, 22.67 and 15 percent interest.
The East Mediterranean natural gas sector has been a riddle with continuous changes in plans by all players both state and corporate for quite some time. A set of new initiatives has shed more light into the activities, particularly those involving a potential new axis that will encompassBulgaria, Greece, Cyprus and Israel.
The Bulgarian Energy Minister Vassil Shtonov paid a visit to Athens on the 12th of September and meet with his Greek counterpart Ioannis Maniatis in order to set up a concrete agenda on gas cooperation via interrelating gas projects.
The common points touched upon (and agreed on in principle) include further reliance on LNG imports in order to secure energy security in the region in light of the Ukrainian crisis and the long term perspectives of the EU. Moreover, key aspects of the two countries bilateral cooperation was characterized by an adherence to the Interconnector Greece-Bulgaria (IGB) in combination with an FSRU facility nearby that will be linked to the East Med gas reserves via either a pipeline or by LNG carriers.
Concurrently in Cyprus and during the proceedings of the 2nd East Mediterranean Gas Conference, the former president of the hydrocarbon agency of the country, Charles Ellinas, pointed out that there are decreasing opportunities for the construction of an LNG terminal on the island due to softening prices worldwide and in the EU in particular.
That brings about the prospect of a pipeline stretching all the way from Israel into the Balkans. By coincidence or not the Israeli side through its foreign minister Avigdor Lieberman supported that view by stating in favor of the "East Med gas pipeline" that will aim to supply Greek and Balkan markets with an interconnection to Italy through the long-term plan of the IGI-Poseidonlink in the Ionian Sea.
More interestingly and in parallel the Cypriot government and the Egyptian one concluded an agreement on their bordering Exclusive Economic Zones (EEZ) that potentially pave the wave for an uninterrupted construction of an underwater pipeline along with joint ventures for more gas discoveries in the East Mediterranean sea region.
Thus it is not clear yet, which direction the gas will follow since the amounts, although significant they are not able to meet the demand in both directions, while still the option for a pipeline into mainland Turkey stands in the table. What be expected though is more hard bargaining behind the curtains and between a wide range of actors and in a very crucial moment for the stability of the whole region which is in the limelight because of terrorism, civil wars and political upheaval.
* Leviathan costs could top $6 bln in initial stage
* Partners searching for first major signed contract
* BG needs Leviathan gas for Egypt plant, analyst says
By Tova Cohen and Ari Rabinovitch
TEL AVIV, Sept 15 (Reuters) - The group developing Israel's giant Leviathan gas field is running out of time to clinch binding major supply deals with Egypt and Jordan to ensure government support for developing the resource before a November deadline.
The field, which promises to help build Israel's regional ties through large-scale energy exports, has lost one of its biggest potential customers, Turkey, in political fallout from the 50-day Gaza war.
And talks with companies, such as Britain's BG Group which wants to bring in Israeli gas to feed its Egyptian liquefied natural gas (LNG) export plants, hinge on difficult commercial negotiations.
Israel has set a November deadline for Leviathan developers Noble Energy of Texas and Israel's Delek Group to submit their plans for getting the field to the production stage.
Failure to submit by the deadline a development plan that includes long-term gas sales with mayor buyers, opens the door to production delays beyond its currently envisaged 2018, when a raft of new export projects around the world threatens to depress profits.
Leviathan's estimated gas reserves of 622 billion cubic metres (bcm) are far too large for Israel's domestic use, making export deals critical to the project's viability, with first phase development costs estimated at $6 billion.
"To raise the funding needed for Leviathan I think they would need to get a big anchor customer like BG," said Eran Yunger, senior analyst at brokerage Meitav Dash.
"If that doesn't happen this year, the field won't be developed according to the current schedule."
In the past six months, renewed tensions with Turkey, a lack of progress on teaming up with a Cypriot gas export plant and tax disputes with Australian LNG specialist Woodside have jeopardised Israel's access to the world's biggest gas markets in Europe and Asia.
Plans to export output from Leviathan on LNG tankers to lucrative Asian countries backfired in March when Woodside called off buying a quarter stake in Leviathan.
REGIONAL AMBITIONS
Focus had subsequently shifted to regional relationships, especially a proposed 8-12 bcm a year pipeline between Leviathan and Turkey, a major energy consumer that has links into Europe and sits 470 km north of the gas field.
Turkish opposition to Israel's treatment of Palestinians torpedoed the initiative put together by Leviathan and private sector buyers in Turkey, including energy joint venture company Enerjisa, half owned by German utility E.ON.
Leviathan partners Noble and Delek are confident that the contracts are moving in the right direction and are sticking to the 2018 timeline, officials have said over the past few weeks.
News early in September of a preliminary agreement to supply Jordan's national electricity company with gas for 15 years, which could be worth $15 billion, was a step in the right direction. But it still falls short of a concrete supply deal that would help underpin the project.
Only the Palestinian Authority has so far committed to buying gas, agreeing a 20-year deal worth $1.2 billion
The Leviathan group did reach a tentative agreement with BG in June that would involve exporting 7 bcm of gas a year over 15 years to an LNG export plant in Idku, Egypt. It remains stuck at the non-binding stage while BG assesses the multi-billion dollar investment, while at the same time developing deep water fields off the coast of Egypt.
BG is also considering a parallel option to link up its Egyptian LNG plant with British oil major BP's North Alexandria offshore gas development, using existing infrastructure by 2016, which may provide a quicker and cheaper route to reviving exports, industry sources said.
Negotiations on terms with the Leviathan partners will probably be the deciding factor.
"BG needs Leviathan and Leviathan needs BG, especially as with an Egyptian deal Leviathan would have enough offtake agreements for the first phase of development," said Amir Foster, a Tel Aviv-based oil and gas industry consultant, who expects the agreement to be finalised soon.
"The (Idku) LNG facility for BG Group is like a sunk cost for them right now, and the investment they would need to make for a pipeline is not so big (as) to make it uneconomic," he said.
Yet BG is coming under growing pressure to cut costs, while at the same time changes in global gas markets threaten to erode LNG sales profits as rival projects in Australia and the United States near start-up.
Delek and Noble declined to comment for this article. (Writing by Oleg Vukmanovic; editing by Keiron Henderson)
Former Foreign Ministry director general: Turkey really needs Israeli gas.
The partners in the Leviathan natural gas field will not call off their efforts to sell gas to Turkey, Delek Group Ltd. (TASE: DLEKG) CEO Asaf Bartfeld said a few days ago in a "Bloomberg" interview. He was responding to Turkish Minister of Energy Taner Yildiz, who stated, "Turkey will not sign a gas pipeline agreement with Israel, given the diplomatic tension between them during Operation Protective Edge."
Israel sources believe that the Turkish option is still relevant. A senior gas industry source said, "Where there are good economic foundations, a deal will emerge, and in the case of Turkey, there is no doubt that it will happen."
The Leviathan partners announced last week that they had signed an MOU for the sale of 45 BCM of gas to Jordan's National Electric Power Company (JEPCO) for up to $15 billion. This deal follows MOUs signed in February 2014 with two Jordanian chemical production companies, Arab Potash and Jordan Bromine, operating on the eastern side of the Dead Sea for the sale of gas for hundreds of millions of dollars. The Israeli gas developers have also signed MOUs with foreign companies operating in Egypt.
The partners in the Tamar natural gas field signed an MOU in May with Spanish company Union Fenosa for the sale of 70 BCM of gas, and the Leviathan partners signed an MOU in June with British Gas for the sale of 105 BCM. "Bloomberg" believes that the monetary value of these two deals is likely to reach $60 billion.
The Palestinians and the Cypriots are also in the picture, with relatively small gas sale deals in the pipeline.
Former Ministry of Foreign Affairs director general Alon Liel, considered one of the most prominent experts in Israel on relations with Turkey, said, "There is no doubt that Israel should sell, and there is no doubt that Turkey wants the gas. Turkey really needs Israeli gas, despite all the statements, including the recent one by the Turkish energy minister." Liel asserted that the agreements with Egypt and Jordan were welcome, but that this region is unstable, while Turkey, on the other hand, is considered a very stable country.
In recent months, the holders of rights in the Leviathan reservoir have negotiated with Turkish companies, and Turkish groups, including Turcas and Zurlu, have expressed interest in negotiations with the partners. The preferred option for gas exports from Leviathan is through a 500-km pipeline to southern Turkey. One of the difficulties is that the pipeline is slated to pass through the Cypriot economic marine area, and under the Sea Convention, the consent of Cyprus is required. Up until now, the Cypriot leaders have rejected the idea, given the tense relations between Cyprus and Turkey, which occupied the northern part of the island in 1974. Furthermore, Cyprus is trying to compete with Turkey as an energy passageway from Asia to Europe.
According to Liel, "If we don't export our surplus gas, there won't be any more drilling . There is a strategic asset here that could serve as glue for important diplomatic agreements."
Profile of the Turkish natural gas system
The question of importing gas from Israel was discussed at a conference conducted early this month in Istanbul under the title, "Diversification of the Energy Sources of Europe and Turkey." Among other things, ways of importing Israeli gas to Turkey were discussed. About half of Turkey's electricity is produced from natural gas. The Turkish economy's total gas consumption is seven times that of the Israeli economy, and it is expected to grow quickly and double in the next 20 years.
Along with Turkey's burgeoning demand for gas, the country lacks its own independent sources, and must import its gas from suppliers at high prices. Turkey pays an estimated $15 per million metric British thermal unit (MMBTU) for gas from Iran, $12 for gas from Russia, and $10 for gas from Azerbaijan. In contrast, the local cost in Israel is $5.75 per MMBTU, while the average price in Europe in 2014 is expected to be $10.50. In order to compete with the European market, the Turks are trying to find a way to lower the price of their gas. The price of gas in Turkey is relatively high, because most of Turkey's gas contracts are still linked to the price of oil, which entails risk. In Europe, on the other hand, only 50% of the contracts in recent years have been linked to the price of oil; the other contracts are influenced more by supply and demand in a competitive market.
Published by Globes [online], Israel business news - www.globes-online.com - on September 14, 2014
