The quantity of gas in the Leviathan reservoir is 24% lower than the quantity reported by the partners in the reservoir. That is the up-to-date estimate by the Ministry of National Infrastructures, Energy and Water Resources, based on a resources report carried out for it by Netherlands-based SGS. Whereas the partners claim that the reservoir contains 21.9 trillion cubic feet (TCF) of gas, according to the new report it contains only 16.6 TCF.
The Ministry of National Infrastructures, Energy and Water Resources is now carrying out a further check of the numbers through another international consultant, and the final quantity is due to be published at the end of next month. If there is indeed less gas in the reservoir, the Ministry of National Infrastructures, Energy and Water Resources will probably reduce the quantity of gas that can be exported from it.
The company that carries out seismic tests for the Leviathan partners is NSAI, and each of its checks has found a larger quantity of gas than the previous one. When the Leviathan discovery was announced in 2010, the quantity of gas in it was estimated at 16 TCF. In May 2013, the partners reported that it was 19 TCF. In July 2014 they reported a further rise in the estimate to 21.9 TCF. The estimate of the quantity of condensates in the reservoir also rose, from 34 million barrels to 40 million.
The test results were provided to the Ministry of National Infrastructures, Energy and Water Resources, which gave them to SGS for further checking. As "Globes" reported, as early as June last year SGS arrived at substantially lower estimates. Its estimate has not been released; as mentioned, it is 16.6 TCF, or 24% below the partners' estimate.
The gap arises from a dispute between the Ministry of National Infrastructures, Energy and Water Resources and the Leviathan partners concerning the quantity of gas in the area where no drilling has been carried out. The Leviathan reservoir has an area of 324 square kilometers (six-and-a-half times the area of Tel Aviv), and only three drillings have so far been carried out. While the partners included in their calculations the quantity of gas in the area where no drilling has taken place, the Ministry of National Infrastructures, Energy and Water Resources refused to do so. Ministry sources say that if gas is found in that area, the ministry will revise its estimate. The gas partnerships also provided a further explanation of the gap between them and SGS, which is that SGS is not expert at estimating reserves. In any case, the contract with SGS has ended, and the Ministry of National Infrastructures, Energy and Water Resources has hired the services of another well-known international consultant, UK company RPS, which has been tasked with examining the two reports, that of NSAI and that of SGS, and submitting a professional opinion to the ministry.
The Ministry of National Infrastructures, Energy and Water Resources stated, "The ministry is carrying out all the required professional checks, and where necessary we shall be aided by experts. When the checks are finished and the figures have been finalized, the ministry will publish them and give directions for the operation of the reserve accordingly."
The Leviathan partners stated in response: "There has been no change in the estimates of natural gas in the reservoir as contained in the resources report released by the partners in the reservoir. We shall continue to deal with developing the Leviathan reservoir, which will benefit the Israeli economy and improve Israel's regional standing."
The gap between 21.9 TCF and 16.6 TCF means a NIS 100 billion reduction in revenue from gas sales and a reduction of more than NIS 50 billion in state revenues from taxation (at an average price of NIS 5.17 per mmbtu). Another, perhaps more important consequence, is that the quantity of gas that can be exported will drop substantially. The Israeli government has decided that Israel should retain a gas reserve of 450 BCM and that the gas companies can export the rest. It also decided that the quantity of gas exportable from each reservoir will depend on its size. For small reservoirs of up to 100 BCM, 75% of the gas will be eligible for export. For reservoirs containing over 200 BCM, such as Tamar and Leviathan, 50% will be exportable. The reason for this is that the government wished to provide incentives for developing small gas fields, and assumed that export prices would be higher than domestic prices.
If the amount of gas in the Leviathan reservoir is as the partners estimate, then they will be allowed to export 11-16 TCF of gas. This takes into account the gas in the Karish and Tanin fields, in accordance with the rules allowing exchange of export quotas between reservoirs.
The Ministry of National Infrastructures, Energy and Water Resources says that if the final estimate of the gas in Leviathan is 16.6 TCF, exports will still be possible to one large anchor customer to the liquefaction plant owned by Shell (which bought British Gas) in Egypt, or to Turkey.
"The final gas quantity that the ministry publishes will mainly affect the second stage of the development of the Leviathan reservoir," says Gal Reiter, energy analyst at the Bank of Jerusalem. Reiter explains that if there are exports in the initial stage from Leviathan to Jordan and to the liquefaction plant in Egypt, there will not be enough gas to justify building infrastructure for exports to Turkey, for example. "At the same time," she continues, "it could be that in that case Leviathan would do a swap deal with Tamar, or with other reserves discovered in Israel, such as in the Daniel or Royee licenses."
There is also the possibility that the government will not reduce the quantity of gas that can be exported since in any case gas consumption in Israel is much lower than expected.
Noble Energy said in response, "Noble Energy engages world-class engineering firms to perform independent assessments of resources and reserves on our assets. We are confident in these reserve estimates, which are developed in accordance with the Society of Petroleum Engineering and US SEC reporting standards."
"Netherland, Sewell & Associates’ best estimate of Leviathan's recoverable resources is 21.9 TCF. We have drilled four wells and performed a flow test on the reservoir, and we have been producing a similar reservoir at the Tamar field for three years. The compilation of our drilling information, flow test data and production data from a similar field along with the independent assessment by Netherland Sewell gives us confidence in the recoverable resources estimate at 21.9 TCF."
Published by Globes [online], Israel business news - www.globes-online.com - on April 24, 2016
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