A year after the failure of the first tender, Minister of National Infrastructures, Energy and Water Resources Yuval Steinitz announced his decision yesterday to hold a second auction of natural gas and oil exploration licenses in Israel's economic waters. The auction documents will be published in the next few weeks, and bids may be submitted until June 2019.
The first attempt at opening up Israel's seas to international competition ended ingloriously: only two companies submitted bids, and won six of the 20 blocks advertised by the ministry. These were Greek company Energean, which in any case was already active in Israel (and is now traded on the Tel Aviv Stock Exchange), and Indian company ONGC, which recently opened a representative office in Israel but has not yet announced a date for commencing exploration at sea. Energean will start exploration during 2019.
The ministry hopes that the auction will yield better results this time around, and sources there say that there is already considerable interest on the part of international energy majors. The sources say that teams from leading global companies have come to Israel to enquire about the auction materials, but they do not name names. As in the first auction, Delek Drilling, controlled by Yitzhak Tshuva, and Noble Energy, the US partner in the Tamar and Leviathan reservoirs, will be precluded from participating in the auction since they hold rights that produce more than 20% of the total amount of gas produced in Israel.
After the thin interest in the first auction, the Ministry of National Infrastructures, Energy and Water Resources tried to learn lessons in order to make the auction process more efficient both for the bidders and for the state. Unlike the first auction, the current auction is of clusters of licenses, each cluster being built around a certain geological structure.
The decision to market the areas in clusters of licenses is meant to make possible a better match between exploration areas and the geological structures that might contain oil and gas reserves. Holding larger areas will facilitate more efficient and more professional geological and geophysical surveys, making the areas more attractive. In the new process, 19 blocks of up to 400 square kilometers each will be offered, in five clusters of a maximum area of 1,600 square kilometers each.
The geological information that will be made available to potential investors will be substantially more comprehensive than in the first auction, and will include seismological surveys, both two- and three-dimensional. In the previous auction, the companies received general information only.
The clusters are situated in the central and southern parts of Israel's Exclusive Economic Zone, in areas in which exploration licenses have already been awarded in the past, and where seismological surveys and other exploration activities have taken place indicating potential for hydrocarbon discoveries.
The Ministry of National Infrastructures, Energy and Water Resources still bases its official estimates of the quantity of natural gas in Israeli waters on the report prepared for the ministry by French company Beicip-Franlab in 2015. According to this report, the amount of gas in the seabed still not discovered is 2,000 BCM, that is, double the amount in the three Israeli reservoirs already discovered: Tamar, Leviathan, and Karish-Tanin.
It can be expected that conditions on global oil and gas markets will be favorable for the Ministry of National Infrastructures, Energy and Water Resources' second auction. Gas prices in Europe are much higher than in Israel, which should encourage investors to come here. The regulatory environment has also improved: two and a half years after the gas plan was approved, Israel now appears more stable as far as regulation is concerned than it did at the time that the first auction was published.
Nevertheless, for all the politicians' optimism, the main challenge for the Israel gas industry is not finding gas, but finding buyers. This is of course assuming that the current auction produces better results than its predecessor and that new gas discoveries are found in Israeli waters. Even now, about half the 1,000 BCM of gas discovered in Israel should suffice to meet Israel's needs until 2042. The rest is the quota designated for export, and finding a market to which to export it is not a simple matter.
Published by Globes, Israel business news - en.globes.co.il - on November 5, 2018
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