Weekly Overview on Eastern Mediterranean Natural Gas Matters
The first week of 2016 was relatively dull in activity in the Eastern Mediterranean after the ominous conclusion to 2015. Natural gas prices are expected to remain low even if oil prices should recover, limiting upstream gas-based activity.
Cyprus
Cyprus natural gas projects' future remains up in the air until foreign and internal developments can facilitate their progress. Currently, because of the limited size of the Aphrodite gas field (4.5 tcf) its export potential is tied to that of Israel’s Leviathan gas field, but the future is hostage to all kinds of political negotiations. Gas negotiations and deals might come later and be influenced by BG. In November, BG bought a 35% shareholding in Aphrodite from Noble Energy in order to have some gas that it can in the future bring to its Egyptian liquefaction facilities which have been virtually inactive as Egyptian demand has grown.
Israel
The forecast for the natural gas industry development during 2016 in Israel has to be postponed for a later date, until the High Court of Justice has released its decision on the petitions submitted against the regulatory natural gas framework. The petitions are due to be heard from the beginning of February and it is unclear how many court hearings are expected and how long it will take the judges to publish their decision. The petitions would be heard by a five-judge panel, possibly a sign that the President of the Supreme Court does not ascribe too much importance to the hearing. A previous hearing on natural gas petitions, which took place in 2013, was heard by a seven-judge panel headed by the Supreme Court President when the panel rejected a petition against the government decision to allow an export quota of 40% of Israel's natural gas production. This time, the panel is made of five judges and the Supreme Court President is not one of them.
In the meantime, Delek Group announced that negotiations are ongoing with potential customers in Israel and abroad in order to sign long-term sales and purchase agreements (SPAs). Those SPAs are supposed to be with anchor customers. If all goes to plan, financing of $10 billion will be needed--in a very unstable geopolitical environment and low natural gas prices levels. That might require the Israeli government to be involved in negotiations in order to assuage investors' fears and to provide, either directly or indirectly, financial guarantees to the projects' lenders.
As part of the implementation of the natural gas regulatory framework Delek Group Energy put up for sale the Karish and Tanin gas fields. The sale proceeds are expected to be in the range of $130 million to $150 million to recover the investment it has made to date in those assets.
Turkey
There has been no new breakthrough between Israel and Turkey, whose relations are normalising. In early January, Turkey’s president, Recep Tayyip Erdogan, declared that "Israel is in need of a country like Turkey in the region. We have to admit that we also need Israel." This positive statement still has to be followed by deeds. However Egypt, Turkey's greatest adversary, is showing signs of unease about the possibility of Israel-Turkey reconciliation and according to Israel's Ha'aretz daily has approached Israel and asked for clarifications concerning the easing of the naval blockade on the Gaza Strip that Israel imposed. Gaza is controlled by Hamas, which is supported by Turkey and opposed by Egypt. Egypt is also Russia's new friend in the region, given that Russia’s relations with Turkey are dire. So Israel once again has to find its way in the East-Med geopolitical maze as its gas investors plan exports to both countries, Egypt and Turkey.
Better news for Turkey is that 850 kilometres of the line pipe for the Trans-Anatolian Pipeline are ready to be laid. The pipeline is planned to transmit gas from Azerbaijan to Turkey and onward to Europe, where in Greece it ties in with the Trans-Adriatic Pipeline.
Ya'acov Zalel