Greek company Energean (LSE: ENOG; TASE: ENOG) began operations in the Israeli offshore natural gas exploration and production market in 2016, when it acquired the Karish and Tanin gas fields from Delek Group Ltd. (TASE:DLEKG) and Noble Energy for $150 million. Since then Energean has been developing the Karish field, with the gas to begin flowing in the third quarter of 2022, from a floating production storage and offloading (FPSO) rig.
The company's discovery in Block 12 currently amounts to eight billion cubic meters (BCM) of gas in commercial quantities. According to IBI Investment House head of research Liran Lublin, Block 12 can be connected to the pipeline delivery system, even before Tanin, because it is closer to Karish.
Lublin explains, "The sand layer in which the gas was discovered is a layer in which we knew there was gas. These are the same layers as Tamar and Karish, so that it is no surprise that there is gas there. The quantities are the big question mark here. Before they began they were talking about a potential of 21 BCM and ultimately they have come out with 8 BC but that is neither a disappointment nor a failure because the market had not already price in 21 BCM. It also means that there could still be additional gas there with Energean talking about a potential of 50 BCM more but until the drilling it is impossible to know.
"If we are indeed talking about 50 BCM, then that would increase Energean's reserves here in Israel by 50% and that is significant. On the other hand, even if there will be additional amounts then the new discovery is positive but not a game-changer."
The demand for natural gas in the domestic market is growing and will continue to grow in the future. However, the new discovery mainly opens options for increasing gas exports from Israel. This could happen through new export agreements which Energean could sign directly, for example with Egypt, or it could happen if the company were to sell additional gas to the domestic market, allowing other gas fields (with existing export agreements) to sell more gas for export.
Lublin says, "In terms of Israel's gas reserves, we are talking about almost 900 BCM beneath the seabed and it is clear that the local market cannot absorb so much in the near future. The Israeli market consumes 13-14 BCM annually so that even if the rate of consumption increases by 1 BCM annually, we are still talking about decades worth of gas in the ground.
"It is clear that additional markets for export must be found because who even knows if natural gas will still be used in another 20 years. So there is here an incentive for companies to monetize (exploit existing assets to produce additional revenue) as soon as possible and an incentive for countries to benefit from royalties and taxation. I assu7me that we will see export agreements expanding. We see NewMed Energy (formerly Delek Drilling) and Ratio bringing forward development of the next stage of Leviathan in order to increase the scale of production.
Lublin concludes, "I assume that the Tamar gas field as well, as gas is freed up from the local market when Karish begins to operate, will try to increase exports, and that is before we have spoken about the dreams of exporting gas to Europe. Overall these 8 BCM are no great dramatic change but it increases the potential for Israeli gas exports, certainly to the inner ring of Egypt and Jordan, and perhaps in the longer term to Europe as well."
Published by Globes, Israel business news - en.globes.co.il - on May 10, 2022.
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