Israel Bullish as It Readies a Second Oil and Gas Auction

Last round was a disappointment, but energy market has improved and gov’t is making the terms more attractive

Ora Coren
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The Leviathan gas platform.
The Leviathan gas platform. Credit: Albatross
Ora Coren

Hoping that better market conditions and bidding terms will draw more interest than its last disappointing efforts did, Israel is planning a second auction of energy-exploration licenses over the next few weeks, the Energy Ministry said Sunday.

The government will offer to oil and gas companies 19 offshore blocks in its economic waters offshore its Mediterranean coast, where there have been seven natural gas discoveries since 2004.

“The aim is to continue the momentum of the Israeli gas sector’s development, increase competition by bringing in new international energy companies and to increase the energy security of the State of Israel,” Energy Minister Yuval Steinitz said.

He pointed to plans to develop an undersea gas pipeline that would run from Israel through Cyprus and on to Greece and Italy. If the pipeline is indeed built it would enable Israel to export energy to Europe and make the blocs being auctioned more attractive to bidders who see little potential in the tiny Israeli market.

The previous auction, last year, ended in just two bids – one from the Greek company Energean and another from an Indian consortium comprising ONGC Videsh, Bharat PetroResources, Indian Oil Corporation and Oil India. The latter group hasn’t yet acted on its license.

Udi Adiri, the Energy Ministry’s director general, expressed reserved enthusiasm about how much interest the new tender would elicit.

Conditions in the global energy market had improved so that companies are more willing to make investments, he said, noting that even before the tender has been published, delegations of leading global energy companies had visited Israel and expressed an interest.

Among other things that have changed since the last auction got underway in 2016, Adiri noted, prices for gas in Europe have risen. Meanwhile, preliminary findings from Egypt’s Noor field indicate vast new reserves that one Egyptian official estimated could reach around 90 trillion cubic feet, or three times the size of Egypt’s giant Zohr field. Zohr and Noor are part of the same geological region.

The discoveries of large new reserves in Egypt as well as deals reached over the last several months that will enable Israeli companies to export gas to Egypt are seen by many experts as paving the way for an Eastern Mediterranean energy hub comprising Egypt, Israel and Cyprus.

“We’re seeing a very high level of interest compared to the previous time,” Adiri said, pointing to Israel’s stable regulatory regime, low taxes and export restrictions.

“In 2016 there were no export agreements, and today we have an export agreement with Jordan, an export agreement signed and approval procedures for Egypt, serious discussions on a gas pipeline to Europe, and demand for gas in Israel will double in 12 years,” he added.

In addition, Adiri said, the auction is being structured to make it more attractive to investors. Unlike in the previous round, bidders will be offered blocks in clusters centered on a bloc regarded as having relatively good potential for finds, and the government is offering more comprehensive geological studies, he said.

Details of the terms will be released by the end of November and the winning companies chosen within six months. But, in general terms, the licenses are being auctioned into 19 blocs of up to 400 square kilometers each. They have been parceled into four sectors of up to 1,600 square kilometers.

Adiri acknowledged that some of the blocs had already been explored but said that didn’t mean they were dry because previous drilling may have reached the wrong strata.

The exploration licenses will be for three years, with options to extend up to four more years, should minimum conditions be met. Bidders have to have at least $400 million in equity and at least 25% of the group has to be held by an operating company, the ministry said.

Winners will be required to deposit $2.5 million against the first bloc they win and $500,000 on additional blocs. Another $5 million deposit will be required before commencing drilling, the ministry added.

Israel’s Delek Group and the Texas company Noble Energy, which developed and own the Tamar and Leviathan fields offshore Israel, are barred from the auction because of their stranglehold on the domestic market, The auction’s rules forbid companies with 20% or more of energy rights in Israel from participating.

Winners will be decided based on the quality of their bids, with points awarded for factors such as price and the quality of the bidder, based on industry experience and environmental factors. The auction will give preference to companies not operating in Israel already.

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