October 20th, 2015
Delek Group, the leading domestic natural gas energy group in Israel, provided its vision on the Israeli natural gas market by 2020 and its main assets: the Tamar and Leviathan gas fields in a presentation to investors in conjunction with a bond issue.
Delek envisions that by 2020 natural gas production in Israel will reach 40 bcm/y from 3 reservoirs, and most of the production will be exported. Potential customers include Jordan, Egypt, and possibly Turkey.
During a meeting with analysts, Delek’s controlling shareholder Yitzhak Tshuva was optimistic about the approval of the natural gas regulatory framework, and said he expects it to be formalized over the next few weeks.
However what is clear from the presentation is that the proposition of natural gas export from Israel to the local Egyptian market is off the table. Natural gas from either Tamar or Leviathan will be supplied to LNG facilities for re-export.
Delek said that an agreement with Union Fenosa Gas (UFG), the Spanish energy company, is expected to be signed in the next few months for a 15 year period for a 4.5 bcm/y, a total of 70 bcm for the whole period. The gas will be supplied from Tamar to UFG's Damietta LNG facility for re-export to European customers. There is also an option of increasing the capacity to 7.5 bcm/y. The price will be Brent-linked with a fixed price floor, although additional details were not published. The company is expecting an FID by mid-2016 and beginning of gas streaming in 2018. The total investment in the project is expected to be up to $2 billion.
Delek said that it still has to settle the tax regulatory issues concerning export projects. Since export Brent linked prices, at the current oil prices, are expected to be much lower than prices at the local Israeli market (currently about $5.5 MMbtu), which are supposed to be the benchmark for taxation purposes, Tamar partners will have to pay higher taxation rates than the real price requires.
Delek is expecting to start exports to Jordan from Tamar by 2016 in a small interruptible contract for a total of 1.8 bcm for a 15 year period (0.125 bcm/y). This contract has already been approved by the Israeli authorities, though a similar but much bigger contract to supply gas to Dolphinus Group in Egypt, which was signed last March, has not been approved yet. That contract is for a total of 5 bcm in 3 years. Delek expects to begin exporting to Egypt under this contract within the next few months. This assumption is doubtful because the pipeline, belonging to EMG, delivered Egyptian natural gas to Israel until it was sabotaged in a 2012 terrorist attack in the Sinai Peninsula. The current security situation in the region has not improved, and therefore natural gas pipelines will become attractive targets.
The Leviathan field will have two development phases. An investment of up to $7 billion is expected in phase 1 for a daily production capacity of 1.6 bcf/d. An option of an upgrade to 1.8 bcf/d is also possible. The main two customers are expected to be the Jordanian Electric company NEPCO, that will purchase 45 bcm in 15 year period, and BG's LNG facility in Egypt for a total of 105 bcm over 15 year period.
As for Cyprus block 12, the presentation said there are negotiations with the Cypriot authorities and Egyptian customers. As opposed to export from Israel, export from Cyprus to Egypt will be designated for the local Egyptian market and only surpluses for LNG facilities.
Ya'acov Zalel
