21 January 2016
New resource estimates for two offshore gas licences have created a stir in Israel, but their development will partly depend on progress on the giant Leviathan field.
United States-based Isramco Negev and Israel-listed Modiin Energy last week released a report – based on seismic data taken before 2001 – indicating there could be up to 251.9 billion cubic metres of gas in the Daniel East and Daniel West offshore licences.
By comparison, the already producing Tamar field contains reserves of 311.3 bcm.
The report estimated that the Daniel East field holds about 31 bcm and Daniel West about 221 bcm, with both fields spread over 10 blocks. The report gave the chances of "geologic success" at 38-43% for the former and 24-57% for the latter.
However, despite the hopes of Modiin Chief Executive Ron Maor that the new estimates could herald a newly competitive domestic gas market, his counterpart at Isramco was more circumspect.
Isramco Chairman Eran Saar said it was not a discovery but a resource report, and the fact that the total volume was split over 10 blocks meant exploratory wells would have to be drilled in each – raising both the technical risk and the eventual price of any produced gas.
He said Isramco and Modiin, which own 75% and 15% of the licences respectively – with ATP Oil & Gas and AGR each having 5% – would bring in a partner before embarking on exploration drilling.
Nati Birenboim, chief executive of energy consultancy Tamuz Group, said the future of the Daniel reservoirs would depend on a number of factors.
"First of all it’s not just one reservoir, it’s actually like nine or 10 reservoirs, so it’s a complicated structure," he told Interfax. "And you don’t need to be an expert to know that the gas over there will be more complicated than the gas from Tamar."
The Leviathan in the room
Birenboim said the produced gas would cost more than gas from the other large reservoirs, and that its commercially viability would depend heavily on whether Leviathan was connected to Israel’s shoreline.
"If Leviathan is connected to the shore there isn’t enough room for Tamar, Daniel and [neighbouring licence] Shimson to all be feeding into the Israeli market," he said.
The Shimson licence, which borders the Daniel blocks and is partly owned by Modiin, has reserves with the potential to produce 15.6 bcm of gas. It also serves as a cautionary tale, as before exploration drilling in 2012 it was estimated to hold as much as 65 bcm.
Israeli media reported that possible break-even gas prices could be as high $7/MMBtu compared with the current domestic price of $5.40/MMBtu.
Birenboim said the Daniel licences could be commercially viable at that price were they to go into production tomorrow, as Israel is still suffering from gas shortages. However, an optimistic timeframe would see production taking place in 2022 at the earliest – three years after Leviathan is supposed to come online.
The new estimates are a bonus for Israel’s potential exporters, however.
The new gas regulatory framework, which took the whole of 2015 to hammer out, stipulates a minimum of 540 bcm of Israeli gas reserves have to be earmarked for the domestic market – meaning the more gas that is discovered and produced the more there is to be exported.
The Tamar and Leviathan consortiums are negotiating to sell volumes to Union Fenosa Gas and BG Group, respectively, to supply their LNG plants in Egypt.
Furthermore, the new rules allow field owners to sell their export rights. This would mean Isramco and Modiin, as well as other companies that discover small reservoirs, could supply the local market only and sell their right to export.
Excitement surrounding the Daniel estimates raises the possibility of increased interest from IOCs in Israel as the country’s main gas players Delek Group and Noble Energy try to find buyers for the Tanin and Karish fields before a government deadline, and as Egypt-based companies look to contract gas from Tamar and Leviathan.
Italian company Edison owns the Royee and Neta licences next door to the Daniel fields, but an anonymous official told Natural Gas Europe in November that the company had no interest in buying the Tanin and Karish fields. Furthermore, a separate official told Interfax they had not started exploring the ones they owned.
Source: INTERFAX
