Israel moved to take advantage of a perceived improvement in market circumstances in early November by launching the country’s second offshore licensing around.
Amendments to the structure of the auction – coupled with a healthier global market and improved regional supply prospects – are calculated as being likely to generate stronger interest than in the maiden auction last year, which largely flopped.
Lebanon – which had a similarly-disappointing experience with the country’s long-awaited debut round and likewise plans a second attempt in the near future – is watching carefully.
The 19-block licensing round was formally launched by the Ministry of National Infrastructures, Energy & Water Resources on November 4 – with further details on the bidding process promised shortly.
Submission of offers is due in June 2019 and awards are anticipated the following month. In common with the debut auction, each block comprises an area of around 400 square km.
However, in order to encourage the acquisition by a single company or consortium of multiple contiguous licences, the acreage has been divided into five “clusters” – four comprising four blocks and one encompassing three – with the US$2.5 million “basic participation guarantee” paid for the first block falling to US$500,000 million for each additional block purchased within the grouping.
“The decision to market the blocks in zones is to allow better correlation between the exploration areas and subsurface geological structures that potentially contain oil and gas structures,” the ministry’s statement explained.
The acreage is all located in the southern and central parts of Israel’s Exclusive Economic Zone (EEZ) – offering some potential cost advantages but lying far from the major existing fields of Leviathan, Tamar, Karish and Tanin.
Licences will have an initial duration of three years – extendable by two years on condition of a commitment to drill at least one well during the period and by a further two years contingent on a promise to drill a well in each of the licences acquired, reflecting the authorities’ assumption that operators will indeed end up acquiring several blocks.
However, development of the Israeli gas industry has long been marked by a fear of a single firm acquiring anti-competitive sway – hindering the development of the giant Leviathan field for several years – and provisions in the tender reflect such concerns.
Firms holding more than 20% in any producing licence – and by implicit extension those holding such stakes in blocks anticipated coming into production in the near future – are barred from bidding. Thus excluded are the US’ Noble Energy, the local Delek Drilling and Greece’s Energean, which between them operate the main existing fields.
New entrants are to be preferred over incumbents “in order to increase the diversity of licence-holders”.
According to the announcement, existing research indicates hydrocarbons potential in the area. Publicly launching the auction, Energy Minister Yuval Steinlitz claimed that more-detailed information - including 2D and 3D seismic data - would be made available to interested companies than had been the case in last year’s auction.
Based on a much-cited study conducted in 2015 by France’s Beicip-Franlab, Tel Aviv estimates the volume of undiscovered reserves in the EEZ at a potential 2.1 trillion cubic metres – more than double the volume discovered at Leviathan, Tamar, Karish and Tanin combined.
However, the results of the first bid round were hugely disappointing for Tel Aviv – with only six of the 24 blocks on offer awarded, to only two operators. Energean took five blocks close to the firm’s Karish and Tanin licences in the north of the EEZ – unilaterally adopting the clustering approach now being incentivised by the government – while a quartet of Indian parastatals took block 32, in the centre.
The lack of interest was explained partly by the structure of the round, whereby the disparate territory was divided in a seemingly arbitrary fashion into the same roughly identically-sized blocks on which the new auction is based – without any financial incentive or official encouragement to bid on multiple blocks.
However, the greater deterrent was believed to be the lack of prospective supply outlets for any reserves unearthed.
Domestic demand, while fast-growing, is currently being met by the Tamar field - with a considerable portion of future domestic requirements to be supplied from the smaller Karish and Tanin licences under contracts sealed by Energean ahead of the final investment decision (FID) on the development project in March.
Regional supply options seemed limited and uncertain. At the same time, the global oil and gas market was only just recovering from the prolonged slump of the preceding three years – when offshore spending in particular was drastically curtailed.
Prospects for regional exports have since brightened considerably. Steinlitz based the increased optimism on “the progress of the subsea pipeline between Israel and Europe, which will allow [Israel] to export the gas to Greece, Italy and the rest of Europe”.
The governments involved have been increasingly vocal over the past year in their nominal commitment to the so-called EastMed pipeline. This calls for a 2,200-km link sending gas from the 623-bcm Leviathan asset and from Cyprus’s as-yet-undeveloped 127-bcm Aphrodite field via Crete to Greece and Italy.
However, the estimated US$7 billion scheme has been on the drawing board for four years and throws up numerous political and logistical obstacles.
Arguably far more-important was a landmark deal in February for the operating team of Noble and Delek to export around 7 bcm per year of gas from Leviathan and Tamar to Egypt’s Dolphinus Holdings, starting in 2019.
Conclusion of the long-mooted agreement followed Cairo’s liberalisation of gas imports last year and confirmed the North African country’s aspirations to become a regional gas transit hub – which offers more-immediate hope of an outlet for future Israeli finds.
President Abdel Fateh el-Sisi recently stated an extravagant ambition for the entirety of potential Eastern Mediterranean exports to be routed through Egypt – satisfying rising domestic consumption and rejuvenating the country’s moribund liquefied natural gas industry.
Lebanon lagging behind
Lebanon has likewise attempted to take advantage of the sporadically-bullish outlook around East Mediterranean gas since the turn of the decade. Perennial political turmoil there has left the country well behind its southern neighbour – with which the government has conducted a heated dialogue over upstream rights in their neighbouring EEZs.
Beirut enraged Tel Aviv by awarding one of only two licences apportioned during the country’s own five-block debut bid round last year for a block encompassing a small portion of a disputed triangle of maritime territory.
The winning consortium – led by France’s Total alongside Italy’s ENI and Russia’s Novatek – has been both defiant and placatory, insisting on the companies’ legitimate rights to the acreage but claiming that initial drilling was likely to take place some distance from the contested area.
In May, the Lebanese cabinet approved plans for a second bid round – with the more-protracted tender process than that of Israel envisaged beginning by year-end with an invitation for prequalification. Closure of bidding is due in October 2019.
Prospective applicants have been invited to meet with officials from the Lebanese Petroleum Administration – the government agency handling the auction – at four international industry conferences, including the Abu Dhabi International Petroleum Exhibition & Conference in the UAE capital on November 12-15.
Both Israel and Lebanon will be keen to attract greater interest by riding the momentum currently being enjoyed by the developers of East Med gas.