Potentially Major Gas Reserves Discovered in Israeli Waters

Market reaction to the findings at Daniel fields is restrained by low energy prices and high drilling costs.

Tamar
A growing share of Israel's electricity is produced from natural gas from the Tamar gas field off the Mediterranean coast. Albatross Aerial Perspective

An Israeli exploration group reported yesterday that it had discovered what could be the largest natural gas field off Israel’s Mediterranean coast since Leviathan’s potential was first revealed just over five years ago. 

The group, led by Isramco Negev and Modiin Energy, said a geological report showed there could be 8.9 trillion cubic feet of natural gas at the Daniel East and Daniel West, close to Gaza’s waters.

That would make it nearly as big as Tamar field, which is Israel’s biggest now in production and contains about 9.9 trillion cubic feet of gas. However, the new discoveries are only a third the size of the Leviathan field, which is still awaiting development and contains about 22.9 trillion cubic feet. 

The news about the Daniel find came as a surprise to the stock markets, which had been focused on the development of the Leviathan field after the government approved the gas framework agreement last month, putting into place the last elements of the regulatory structure for the industry.

Still, the market reaction was restrained. Isramco, which owns 75% of the license, ended just 1.1% higher at 65 agorot (about 16 cents) in Tel Aviv Stock Exchange trading and most energy shares were lower.

Global energy prices have fallen so sharply – and a day before sanctions on Iran were rescinded, clearing the way for supply to grow further – that analysts were far from certain that it would be commercially viable to extract the gas.

Eran Saar, Isramco’s CEO, agreed. “While we’re talking about an encouraging finding, which should provide renewed hope to the gas exploration sector in Israel, we should take everything proportionately,” he said.

“In my humble opinion, this isn’t a dramatic development for the Israeli gas industry. We’re not talking about a discovery but a report on potential resources, which at this stage we have no certainty will come to fruition,” he said.

Moreover, unlike Tamar and Leviathan, each of which consists of a single geological structure, the Daniel sites consist of 10 separate structures, each of which will require expensive separate drilling for verification, warned Ela Fried, energy analyst at First International Capital Markets.

Nevertheless, sources in the energy sector said the preliminary find was evidence refuting those who were skeptical that more gas would be found off the coast in Israel’s economic waters. 

The geological report prepared by the Texas firm Netherland, Swewell & Associates said its best estimate for gas being found at the Og structure was between 38% and 43%, while at the other structures at the site it was between 24% and 57%. By comparison, the best estimate odds for Tamar were first put at 35% and at Leviathan at 50%.

The Daniel East and Daniel West sites are in deep water roughly 100 kilometers (60 miles) off the coast. Aside from Isramco, Israel’s Modiin has a 15% stake with an option for an additional 10% to 15%, while ATP Oil &Gas and AGT have about 5% each.

ATP, a Houston-based firm with operations in the Gulf of Mexico, filed Chapter 11 bankruptcy proceedings two years ago and is in the process of being dissolved.

Tzahi Sultan, one of the controlling shareholders in Modiin, said the Daniel site presented the greatest potential gas find since the Leviathan discovery and could substantially change the Israeli energy market.

“If its potential is realized, the find could greatly spur competition in the Israeli gas market,” he said.