An announcement that gas has been discovered in Daniel will come in the distant future, if at all, but it can be stated that the country is not ready for it.
Will the gas be designated for exports or the domestic market? Will the Daniel license partners have to construct separate infrastructure for exporting, or will they be allowed to connect the gas field to the infrastructure for Leviathan? Who will pay for the gas pipeline to Israel - the partnership or the state? What royalties will Modi'in and Isramco have to pay? Will the state guarantee local customers in order to expedite development? There are no answers to these and other questions.
Although the gas plan has been signed and approved, the Ministry of National Infrastructure, Energy, and Water Resources still has no policy for developing small and difficult-to-develop gas reservoirs. In the absence of such a policy, no reservoir will be developed, and there will certainly not be competition in the gas sector.
Most of the world's oil and gas-producing countries have a policy for developing small reservoirs, whether anchored in legislation (as in Albania, Malaysia, the Netherlands, Pakistan, and Peru, for example) or in the country's fiscal policy (as in Russia, Thailand, and the UK, for example). The incentives for developing small reservoirs consist of lower taxes and royalties for these reservoirs, plus other benefits.
In Angola, for example, small reservoirs pay 20% less royalties on their revenue than large reservoirs. The UK reduced the royalties (a regressive tax) paid by gas companies in order to facilitate development of small reservoirs, and the Netherlands provides a series of benefits to owners for the development of more than 460 small reservoirs with an aggregate total of 1,500 BCM of gas.
Israel has none of this, and the gas discovered in the Daniel or other licenses will therefore simply remain under the seabed. The Israeli market, in which most customers have signed long-term contracts with the Tamar partnership, can certainly not make developing additional licenses worthwhile. The prices that the owners of small reservoirs will obtain for the gas they export will also not make it worthwhile the crash of global oil prices over the past year, have cut the price of gas by 50% in Europe and 60% in Asia.
The most solid proof of how difficult it is develop small reservoirs in Israel is the case of Karish and Tanin. Even though these reservoirs have been shown to contain 55 BCM, they are still not being developed. It is true that up until recently, they could not have been developed because of regulatory problems in Israel, but even now, when these difficulties have been solved, no company is chasing after Delek Group Ltd. (TASE: DLEKG) and Noble Energy to buy them.
Published by Globes [online], Israel business news - www.globes-online.com - on January 19, 2016
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