Israel’s gas exports start up [NGW Magazine]
In the next few weeks, if nothing untoward happens in the unstable region of the eastern Mediterranean, gas will start to flow from Israel's offshore gas field Leviathan to the beach terminal and from there some will be exported to Egypt and to Jordan.
Apart from the producers, Noble Energy, Delek Drillings and Ratio, the company that can make the most of this activity is Israel Natural Gas Lines (INGL), a government-owned company that develops and operates Israel’s natural gas grid.
When the export contracts with Dolphinus Holdings of Egypt and Jordan's power company Nepco are running at full capacity, the company will enjoy an annual revenue growth of some IS 500 ($150)mn, roughly doubling its current revenues. In the first three quarters of this year, INGL revenues were $131mn and net income was $7mn. That was down over 40% from the same period last year, mainly owing to its investment in export facilities and upgrading the grid.
This has been an important year for INGL. It concluded an agreement with Leviathan partnership to transmit gas to Egypt (the Jordanian agreement was concluded earlier); it completed laying the pipeline to the Jordanian border in the eastern part of the country and connected it to the Jordanian natural gas grid; and it invested heavily in other projects in order to promote natural gas demand in the country.
"During the last year we continued our investment plan in Israel, enabling the possible exports of Israeli natural gas to our neighbouring countries," INGL chairman Eitan Padan told NGW. "We've also made the adjustments needed to move from a single-supplier based system, to multi-supplier system. We mainly moved from pressure control to flow control. That is a move that needed investment of millions of dollars on the pipelines. We also gave guidance to our customers on how this new structure and how this new gas regime will work."
INGL's main project during 2019 was the completion of the interconnector to Jordan: a 30-km pipeline from Afula, a town in central Israel, to the border.
Another significant development was signing an MOU with IGI Poseidon to push forward the Eastmed project, an EU Project of Common Interest, involving a 2,000-km gas pipeline that is planned to bring Israeli natural gas to Italy.
In regard to the Eastmed pipeline, Padan says that the project is still in its early days. "I think that we're not in FID stage right now," he said. "We are currently working on the economic and technical feasibility of the project. But we do believe it is an important project that needs to be put forward. Especially since we've perceived that the Israeli gas market will be saturated with a surplus of gas in the next few years, with Leviathan and the Tanin and Karish fields come online and start to produce very shortly. Our belief is that eventually there will be need for additional export options, viable export options, that Israeli gas will have new customers and we believe that the Eastmed project is therefore an option [for gas export]."
Padan added that INGL is a member of working groups assessing what the actual cost of Eastmed will be and how best to route the pipeline to bring the gas out of Israel to Europe. Several company divisions are involved in the project, including engineers and business development groups. "I believe that INGL has an added advantage in this project to bring to the table, especially since we are a pipeline company," Padan said.
Edison hopes for Eastmed FID in 2.5 years
The Eastmed pipeline roject is expected to have a final investment decision in the next few years, according to the CEO of IGI Poseidon and executive VP of Edison, Pierre Vergerio. He was speaking at the 2019 energy and business convention in Tel Aviv. IGI Poseidon is a joint venture between Italy's Edison, the wholly owned subsidiary of EDF; and Greek gas supplier Depa Greece. The JV is promoting the Eastmed project.
Vergerio said that the project cost has been evaluated and confirmed to be economically viable, based on $7mn Btu price for gas in Italy and a netback price of $3.5-$4/mn Btu. "We would like also to start the commercial discussions between the sellers here [the Israeli partnerships] and the buyers, of which I may represent one," Vergerio said.
During the four years since the project was initiated, no "showstoppers" have been found, despite concerns that physical conditions could prevent the project, he said. Cost estimates for the 2,000 km subsea pipeline have come down by about a fifth to €6bn, though further evaluations will take place during the next few years before the FID.
Currently the project is defined by the European Union as a project of common interest (PCI) and as such it is funded with €35mn from the EU which is half the budget for the detailed design. Tenders for the design work are expected before the end of January 2020.
Vergerio said that the project is not in competition with the liquefaction facilities in Egypt, since export capacity from the Israeli natural gas reservoirs are at 25bn m³/yr, which is much larger than the combined 17bn m³ of the two Egyptian facilities.
"These facilities anyhow are limited and there is plenty of room for another export route," he said.
Long-term contracts will be needed to launch the project. The Italian market should be a target market with expected prices of around $7/mn Btu that will make the gas competitive with other LNG sources and with Asian LNG where long term contracts are typically priced at 11.5% of Brent and the spread to Italian price is $0.7/mn Btu.
In a commercial deal the gas producers can get a netback price of $3.5-4/mn Btu, "But the fiscal regime will be quite important," Vergerio said in a reference to the Israeli fiscal regime where 60% of the wellhead price goes into the government coffers.
In response to Vergerio, Yani Friedman, the deputy CEO of Delek Drilling which owns 45% of Leviathan, said that his company found the numbers challenging and “there is still a lot of work to do on the commercial side to see if it makes sense."
"It is not $10 it is not $5 but it is not $2," Vergerio responded. "We have been working in the last few months on the economics of the project. We are part of the solution but the other part is here of course with the producers and also with the authorities about the fiscal regime. It is better to sell at $5/mn Btu, but if the market is not there the gas has a good chance of staying in the ground."