In Blow to Israel's Energy Sector, Partners Giving Up on Daniel Gas Field

But Bloomberg reports Shell is in early talks to buy Israeli natural gas for its Egyptian LNG plant

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

Israel’s energy industry suffered a major blow on Sunday after the partners in the Daniel natural gas field said they were giving up their licenses. But the industry also got a potentially major boost after Bloomberg News reported that Royal Dutch Shell is in talks to buy natural gas from the Leviathan field.

Isramco and Modiin Energy, the lead partners in the field, said they were returning the license they were awarded six-and-a-half years ago to export and develop the Daniel’s east and west fields.

In a statement to the Tel Aviv Stock Exchange, the two partnerships cited “assessments regarding the level of geological risk in the licenses, the difficulties expected in commercializing the gas, if and when it is discovered, and the lack of interest by new investors.”

Daniel is estimated to hold some 8.9 trillion cubic feet, making it nearly as big as Tamar, Israel’s only natural gas field currently in production. However, unlike the Tamar and Leviathan fields, Daniel’s gas is located in multiple strata – which makes it more costly and difficult to extract.

The decision to return the Daniel license marks a major setback for Israeli energy policymakers, who have been trying to lure more companies to drill with the aim of turning Israel into a regional energy-export power and bringing more competition to a domestic market dominated by the Tamar and Leviathan partners.

However, an international tender for exploratory licenses issued last November failed to generate much interest, forcing the government to extend the deadline.

But prospects for exports to Egypt have been growing in recent weeks after Cairo enacted a new energy law that paves the way for gas imports. On Sunday, Bloomberg said Shell was in early-stage talks to buy gas for its Egypt-based liquefied natural gas plant from Leviathan and from Cyprus’ Aphrodite field. The LNG would be exported and maybe used locally in Egypt, Bloomberg said.

Shell owns a 35% stake in Aphrodite. The other partners in the field are Texas-based Noble Energy and Israel’s Delek Drilling, which are also the lead partners in Tamar and Leviathan.

Energy Minister Yuval Steinitz said experts estimate there is as much as 15,000 billion cubic meters of gas in the eastern Mediterranean basin that includes Israel, Egypt and Cyprus – enough to supply domestic needs as well as Europe. Combining output from all the fields could potentially improve the projects’ financial prospects.

News of a possible Shell deal sent shares of Delek Drilling up 3.9% to 13.09 shekels ($3.62). Ratio, another smaller partner in Leviathan, rose 5.1% to 2.40.

The partnerships’ right to the Daniel field are due to expire next April. But on top of the technical and cost obstacles, Isramco and Modiin said they had failed to enlist investors to help develop the field.

Nearly all the potential customers for natural gas in the Israeli domestic market have been largely sewn up by Tamar and Leviathan, as well as by the smaller Karish and Tanin fields controlled by the Greek energy company Energean.

Shares of Isramco, which holds 65% of the licenses as well as a stake in Tamar, ended down 0.6% at 5.15 shekels. Modiin, which owns 15% of Daniel, dropped 2.1% to 9.46. Modiin said it had been interested in holding onto the Daniel license and developing the field, but didn’t have the financial resources to increase its stake.