Energy Shares Tank at Tel Aviv Stock Exchange as Egyptian Gas Find Upsets Export Hopes

Oil and gas shares post double-digit drops amid concerns that Leviathan won't have enough customers for its reserves.

Off Haifa coast, oil rig at enormous Leviathan natural gas field.
Albatross

Energy shares plummeted on the Tel Aviv Stock Exchange Monday as Israel’s natural gas industry grappled with a sudden, unexpected change in the market outlook prompted by news that a giant gas field had been discovered offshore Egypt.

The find, announced by the Italian energy company Eni on Sunday, raised fears that the preliminary gas-export contracts with the partners in Israel’s Tamar and Leviathan fields would not come to fruition.

“The big fear is that this giant gas find will close the door to any option of exporting Israeli gas and will lead to a long delay in developing the Leviathan and even its not being developed at all,” said Liran Lublin, energy analyst at Israel Brokerage & Investments.

The news also threatened to upset the government’s gas framework agreement, which was supposed to go to the Knesset for approval this week (see story on this page).

The stock exchange’s Oil and Gas Index ended down 12.9% at 952.20 points in late morning trading, with Avner down 15.9% at 2.27 shekels (58 cents), Delek Drilling off 15.1% to 12.01 and Ratio, down 23.2% to 27 agrorot, all in very heavy trading.

In New York, shares of Texas-based Noble Energy were down 2.5% to $33.66 at midday local time.

All four companies are partners in the giant but as yet undeveloped Leviathan gas field, and had been counting on Egyptian exports to take up a large portion of the gas it will produce when it comes on line.

But analysts said the smaller Tamar field, which is already serving the Israeli market, would also feel the impact. Isramco, a partner in Tamar along with Noble, Delek and Avner, ended down a more modest 8.8% to 68 agorot.

All told, it added up to paper losses for stock market investors of 2 billion shekels Monday, not counting losses in exchange traded notes. For Yitzhak Tshuva, the controlling shareholder in the Delek Group, the losses came to 913 million shekels.

Eni said it had discovered the largest known gas field in the Mediterranean, predicting the find could help meet Egypt’s gas needs for decades to come. The Italian major said in a statement that the offshore Zohr field could hold 30 trillion cubic feet of gas, but didn’t say how long it would take until the field went into production.

On Monday, Eni CEO Claudio Descalzi termed the discovery a “game changer” for Egypt and the Mediterranean in terms of energy stability.

“It is changing the game for Egypt. It is very important for Egypt, but also for the Mediterranean in terms of stability,” he told the CNBC television network, although he added that Eni will likely sell most of the gas to Egypt’s domestic market, which is desperately short of energy.

That left open the possibility that the deals to export gas to Egypt might not be affected, although that was not the preliminary conclusion of energy analysts or the market.

The Leviathan partners reached a memorandum of understanding more than a year ago to sell BG, formerly British Gas, to sell the U.K. company 105 billion cubic meters of gas, or 17% of the field’s output. In addition, the Spanish company Union Fenosa signed a 15-year agreement to buy a fifth of Tamar’s gas

In both cases, however, the gas isn’t designated for the Egyptian market but for the companies’ liquefied natural gas plants in Egypt, where it would be processed and re-exported to other countries, mainly in Europe.

But Meitav Dash energy analyst Eran Junger said the existence of the Zohr field made is virtually certain that the Leviathan export contract would not be signed, leaving the giant field with just two customers – Israel and the tiny market of Jordan. He dismissed talk of exporting to Turkey, another nearby and big market, which has agreements with Russia and Iran for gas.

“In this situation, development of Leviatan will be smaller, less costly and the quantity [of gas] sold smaller and the price lower,” he said in a report. “In addition, development is likely to be delayed by a year at least because of the work required for a new development program.”

Meitav Dash cuts its valuation for Leviathan by 51% to $3.3 billion and the value of Tamar by 21% to $12 billion. It recommended selling shares in all the Leviathan partners, but limited its downgrade for Isramco, which has a stake in Tamar only, to Market Underperform.