The scramble for East Mediterranean gas is on

Oct. 4, 2010
Israel's Prime Minister Benjamin Netanyahu, seeking to strengthen political ties with Europe, recently suggested to Greece's Prime Minister George Papandreou that his country could soon be importing natural gas by undersea pipeline from Israel.

Israel's Prime Minister Benjamin Netanyahu, seeking to strengthen political ties with Europe, recently suggested to Greece's Prime Minister George Papandreou that his country could soon be importing natural gas by undersea pipeline from Israel.

Netanyahu was referring to the newly discovered gas fields in the Mediterranean off Israel, where Noble Energy Inc. and its partners said a 3D seismic survey on the Leviathan structure found a reservoir that could contain an estimated 453 bcm of gas.

The survey covered five sectors: Amit, Rachel, David, Hanna, and Eran, which are licensed to the Delek Group through Delek Drilling and Avner Oil Exploration with a joint 45% stake, Noble 40%, and Ratio Yam 15%.

Noble also surveyed the Alon A and Alon B sites, which are licensed to Delek 53% and Noble 47%, as well as the Block 12 exploration area in Cyprus waters. The concession there is held by Noble, and the Delek Group has an option for a 30% stake in that site.

The amount of gas in the Leviathan structure is thought to be sufficient to meet Israel's domestic consumption for 60 years at current demand projections (Figs. 1 and 2). Added to Tamar, discovered earlier in the same area, Israel now has more than enough gas to meet domestic demand for 90 years, according to estimates.

Exploratory drilling at Leviathan is expected to take place in the final quarter of 2010, though a drilling plan wasn't complete at this writing Sept. 7. Nor, apparently, had the funds been allocated to carry it out. The exploration partners reportedly need to find buyers, and soon, to improve their cash flow.

Geographically, Europe is the most natural market for Israeli gas. It is politically expedient, too. Exporting natural gas to Europe would strengthen Israel's political links, while reducing European countries' anxiety over their heavy dependence on Russian gas.

Lebanon-Israel friction

Noble's activities in the East Mediterranean attracted the attention of other governments in the region, with offshore licensing rounds now expected in Lebanon, Cyprus, and Syria by early 2012. Indeed, analyst BMI said it expects the region's resource potential "to attract significant investor attention."

But there is also a certain amount of friction being generated, with the Lebanese government expressing concern that the Israeli fields might extend into Lebanese territorial waters. Lebanon's Energy Minister Gebran Bassil even said "it is very clear" that Israel's "intentions are to aggress our resources."

Predictably enough, the Lebanese militant group Hezbollah has jumped into the fray, vowing that it will defend the country's "natural treasures," while Israel's National Infrastructure Minister Uzi Landau has warned that Tel Aviv would respond "with all of our ability to protect our interests."

To catch up with Israel's efforts to commercially exploit the offshore resources, Lebanon's parliament on Aug. 17 passed a new energy law, described by Bassil as paving the way to the country's first offshore licensing round in early 2012. But independent analysts cast doubt on Lebanon's ability to capitalize on the situation for a variety of reasons.

"The Lebanese government has rushed through a law that will allow for licenses to be issued for offshore oil and gas exploration," said the Economist Intelligence Unit.

"However, many crucial details on the regulatory framework remain to be clarified, and the law's main purpose appears to be political, as a reaction to the rapid development of Israel's offshore gas prospects," the EIU said.

That view was shared by BMI, which said Lebanon faces "a myriad of additional challenges" that continue to make the analyst cautious over the country's ability to establish an oil and gas industry under such a tight time frame.

"The ministry must delineate exploration blocks, acquire basic data on those blocks, pass the data on to interested companies, select qualified bidders and finally solicit bids and award licenses," BMI said.

Syria, Cyprus license hopes

Meanwhile, Syria is expected to launch a licensing round in late 2010 or early 2011 for four offshore blocks covering 5,000 sq km.

In the hopes of improving their chances of success, the Syrians are said to be acquiring additional data on the blocks, which failed to attract bids when offered in mid-2007.

Cyprus also expects to launch an offshore license round, its second, in the first half of 2011. The country's first round attracted little interest from international oil companies, which were concerned over the risks of acquiring acreage that was subject to Turkish territorial claims.

All in all, the greatest chance of success seems to be with Israeli efforts to exploit the offshore reserves, with other countries in the region largely looking on.

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