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Israel’s failure to attract major oil companies is a massive blow to its ambitions

August 29, 2017 at 3:54 pm

A general view of the port of Kharg Island Oil Terminal in Iran on 12 March 2017 [Fatemeh Bahrami/Anadolu Agency]

Israel has managed to beat its Mediterranean neighbours in the development of its offshore gas industry over the past two decades by discovering 10 gas fields, specifically in the northern waters adjacent to Cyprus and Lebanon. Initially, Israel was concerned with developing the Tamar field, which has about 282 billion cubic metres of gas, and the Leviathan field, which has about 500 billion cubic metres.

Since Spring 2013, gas has been produced from the Tamar field to supply local power stations. Negotiations are underway with neighbouring countries to export Leviathan gas, not to mention changing most of the local power stations to use two types of fuel, gas and oil, rather of depending on only one type, as was the case in the past, either coal or oil.

However, the Israeli gas industry faltered in December 2014, when Israel’s then Antitrust Commissioner accused the Noble Energy-Delek consortium of monopolising all discoveries in accordance with the agreements signed by the gas authorities, as well as monopolising internal gas supplies and the prices of gas and electricity. This resulted in disagreements within the Knesset (Israeli parliament) and civil society over this lawsuit; Prime Minister Benjamin Netanyahu took part, as he considered it a matter of “national security”. The issue was ultimately referred to the courts.

However, middle ground was found in order to rescue the gas industry from the repercussions of the chaos caused by the cancellation of memorandums of understanding for export to neighbouring countries, and the fears of international oil companies about working in Israel due to the fact that approval needed to be obtained from multiple parties, even after the signing of agreements. They were also discouraged by the contradiction in the official institutions’ privileges and the extent of competition in working in Israel compared to other countries.

Read: Israel buys $424m worth of weapons to protect gas fields

Some of the largest law firms and public relations companies, especially in the US, have been involved in these disputes. Solutions were reached, with the consortium countries giving up their shares in some relatively small fields, especially in the neighbouring Karish and Karan fields, which are considered the closest to Lebanese waters (about 10 miles away).

Most importantly, the first licensing cycle was announced in September 2016 and began last November. The names of the winning companies were announced on 17 March this year. The agreements with the consortium led by Noble Energy were reached through bilateral talks.

The main objective of the first licensing cycle was the development of 24 offshore blocks adjacent to the Tamar and Leviathan discoveries. The size of some sectors is about 400 square kilometres, while the depth of the water is between 1,500 and 1,800 metres. The cycle aimed to attract international oil companies in an attempt to benefit from their technical expertise and their marketing, industrial and financial capabilities. It also aimed to begin a new era of experience between Israel and the international oil companies, especially after the antitrust authority complaints and changes in the Arab boycott laws.

This was followed by an attempt to break through the boycott in one of the most important economic sectors in the Middle East. Opening this relatively large number of maritime sectors all at once was accompanied by Israel’s interest in the discovery of crude oil in commercially volume in deep geological strata. This was after evidence emerged that oil could be found. Official sources said at the time that independent research bodies estimated the amount of oil that could be found amounted to about 6.6 billion barrels, in addition to 2,137 billion cubic metres of gas.

Energy and Water Resources Minister of Israel Yuval Steinitz

Image of Israeli Energy Minister, Yuval Steinitz, [File photo]

“Companies operating in Israel [Noble Energy and Delek] are not allowed to participate in the tender, in order to encourage competition,” said Israeli Energy Minister Yuval Steinitz.

The concerned Israeli authorities tried to make the first licensing cycle successful, but to no avail. The energy minister and ministry officials participated in large-scale promotional conferences in London, Houston and Singapore, as well as an “information room” for companies, but did not achieve their goals.

Only four companies have announced their interest, namely Greece’s Energean, Italy’s Edison, an Israeli company that has not been named and Spain’s Repsol. As a result of this low turnout, both in terms of number and significance, and because Repsol is the only one with a prestigious position within the European oil companies, there has also been news in the oil industry about trying to attract international companies to work in Israel, specifically Exxon Mobil, but no agreement has been reached yet.

Due to the scarcity of companies that have shown an interest in participation, especially given the large number of sectors offered to companies and the failure to reach agreements with international companies, the date of the session was extended to 21 April and the results were announced in July. However, with the failure to attract many or important companies, even after the extension, it seems clear that the session will be extended further, perhaps to the first quarter of 2018.

The lack of interest from the major oil companies in the Israeli gas industry has been a massive blow to Israel’s ambitions to attract those with large capital, specialisms and experience in the development of deep offshore fields, and which have the necessary connections to new large market routes (a dilemma Israel faces despite its attempts with Turkey, Greece and Italy). It has also hindered Israel’s desire to compete with Egypt (with the discovery of Eni in the Zohr gas field), in order to become a regional centre for the gas industry in the east Mediterranean.

This article first appeared in Arabic in the New Khaleej on 28 August 2017

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.