Israeli Gas in a Wider Regional Context: Interview with Shaul Zemach
Natural Gas Europe had the pleasure to speak again with Shaul Zemach, Former Director General of Israel's Ministry of Energy and Water Resources. We spoke about how ENI’s discovery off Egypt is a game changer. “With two Majors substantially investing in the Egyptian offshore gas targets it would be reasonable to anticipate results in new discoveries. The amazement was due to the scale of the discovery at Zohr field, given its location and interesting geological structure.” At the same time, according to Zemach, the Zohr discovery could “modify certain terms and conditions of future regional gas supply contracts, including gas prices and contracts duration.”
Among specialists, the announcement of ENI’s giant discovery offshore Egypt has casted doubts over Israel’s attractiveness as a natural gas supplier for Egypt. For instance, consultancy WoodMackenzie wrote that Eni's giant discovery is set to transform Egypt's gas outlook. On the other hand, Egyptian authorities confirmed their interest for Israeli gas at least in the short-run. What should we think?
Export of Israeli gas to supply Egyptian domestic consumption or to Europe via the idle LNG facilities in Egypt was a great challenge even before Eni's announcement on the giant discovery. Since it refers to different time horizon, the discovery made by Eni in Zohr field, by itself, will not necessarily crowd out future export from Israel to Egypt, especially from Tamar field with targeted date 2017. More generally, Eni's Zohr discovery, and those that will follow, may push to modify certain terms and conditions of future regional gas supply contracts, including gas prices and contracts duration.
Is it just a matter of timing? Was not somehow easy to foresee that Egypt would have found oil and gas? In July, for instance, ENI made a gas discovery in the Abu Madi West license in the Nile Delta, Egypt, saying that the preliminary estimates of the discovery indicate a potential of 15 billion cubic metres. Was it not just a matter of time?
The discovery offshore Egypt was not a surprise, except for its scale. As result of recent attractive gas arrangements made by Egyptian government in order to regain domesticgas supply, just few months ago, On March 2015, BP announced the signing of the West Nile Delta project to develop 5 tcf of gas resources with an estimated investment of around $12 billion by BP and its partner. Production from WND is expected by BP to reach up to 1.2 billion cubic feet a day (bcf/d), equivalent to about 25 per cent of Egypt’s current gas production. BP believes that there is the potential through future exploration to add a further 5-7 tcf which could boost WND production with additional investments. BP expects to double its current gas supply to the Egyptian domestic market during this decade when the WND project reaches its peak production. BP Egypt also announced in March 2015 another gas discovery in the North Damietta Offshore Concession in the East Nile Delta, the “Atoll-1” with estimated potential in the concession exceeds 5 trillion cubic feet (tcf). On 14 March 2015, at the Egypt Economic Development Conference, in Sharem Al-Sheik, the Egyptian Ministry of Petroleum signed with Eni a Heads of Agreement (HOA) document worth an estimated total value of USD 5 billion, which was expected to result in the production of 200 million barrels of oil and 1.3 trillion cubic feet of gas in the next 4 years. With two Majors substantially investing in the Egyptian offshore gas targets it would be reasonable to anticipate results in new discoveries. The amazement was due to the scale of the discovery at Zohr field, given to its location and interesting geological structure. It should be further explored.
Do you think that ENI’s discovery offshore Egypt should require a reaction from Israeli politicians?
The Egyptian case demonstrates the positive effect of Governments' policies that create certainty and a sound investment climate for private sector willing to engage in exploration activities, which in turn can lead to new discoveries.
Is it a lesson for Tel Aviv?
Israel should set clear priorities in terms of Leviathan's development, and adopt policies that induce certainty and stability in the gas market. Israel should also adhere to the implementation of its gas export policy outlined by the Zemach committee recommendation. It is an appropriate and industry-accepted mechanism to maintain sustainable exploration activities over time. It incentivises development overlaps to secure gas redundancy and avoid discontinuity of gas supply.
More generally, what’s your understanding of the situation in the Middle East? Ian O. Lesser, Senior Director for foreign and security policy at German Marshall Fund (GMF), recently said that the situation in Egypt is deteriorating. Could general instability in the region play in favour of Israeli gas export projects?
Natural gas, as a general rule, is traded regionally via pipelines. In the Israeli case, export to regional destinations, especially Egypt or Turkey, turned to be the only feasible alternative to export substantial amounts of gas in the short and medium run. Leviathan development, which is essential cornerstone to Israeli security of supply, depends (for now) on export, and so is the expansion of Tamar field. In that respect, regional instability would have a negative effect on Israel's security of supply.
Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci