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What is best price for Israeli gas to be commercially attractive?

Oil&Gas Materials 30 August 2017 10:33 (UTC +04:00)

Baku, Azerbaijan, Aug.30

By Leman Zeynalova – Trend:

Gas prices in Europe range at an average of about $5.50 per million BTU (British Thermal Units) and in Asia at about $6.50 per million BTU, and are expected to stay close to these levels for a long time, if not forever, Charles Ellinas, CEO of Cyprus-based energy consultancy e-CNHC told Trend.

This is due not only to the glut of liquefied natural gas (LNG) in global markets, but also to the relentless shift in the global energy mix towards renewables, the expert explained.

“At such prices imports of gas from Israel and Cyprus, liquefaction in Egypt and export, especially to Europe, would be commercially challenged – unless of course Israel and Cyprus reduce the price of their gas to sufficiently low levels, $3 per million BTU or less,” he noted.

However, the practicalities of Israeli gas export to Egypt through Sinai are unclear and challenging, including security risks in Sinai, said Ellinas, adding that it will also add more costs to a project that is already commercially-challenged.

“The greatest challenge to such gas imports is commercial. This needs to be overcome first before other issues are addressed,” he said.

The expert recalled that as a result of the new gas regulatory framework, agreed last year between the government and the oil and gas companies, Noble Energy and its partners are required to reduce prices to the domestic market to the same level as export prices, if these are lower.

“Israel’s Tamar field currently sells its gas to the Israeli Electricity Corporation (IEC) close to $6 per million BTU and it is highly profitable. Noble Energy is unlikely to undermine this. Adding to such costs the cost of the pipeline, would make such exports prohibitively expensive,” said Ellinas.

Israel faces too many challenges in exporting Leviathan gas, he said, adding that this is why seven years since the gas field was discovered no firm export gas sales agreements have been secured.

Earlier, Israel expressed interest in transporting its gas to Europe via the Trans Anatolian Natural Gas Pipeline (TANAP). Israeli Minister of National Infrastructures, Energy and Water Resources Yuval Steinitz has said that Turkey and Israel intend to sign an agreement on construction of a gas pipeline to Europe by late 2017.

The partners on Israeli Leviathan gas field have approved the development plan for the field with a target production date for late 2019.

The development plan envisages production of about 12 billion cubic meters of gas a year at a cost of $3.5-4 billion.

The Israeli partners in Leviathan include Delek Drilling and Avner Oil, each with a 22.67 percent stake, and Ratio Oil with a 15 percent stake. Moreover, Noble Energy Mediterranean Ltd has a 39.66-percent stake in the project.

The Leviathan field was discovered in 2010. According to Noble Energy, Netherland, Sewell & Associates estimates Leviathan’s recoverable resources at 21.9 trillion cubic feet (620 billion cubic meters).

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Follow the author on Twitter: @Lyaman_Zeyn

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