"Leviathan" - A Mighty Whale in The Mediterranean?

Published: October 18th 2010
in Economics » Israel

Pic: WikiMedia Commons

There is a 50% chance that this is going to be the discovery of the century, say many economists, engineers, politicians and investors. All of them are deeply involved in the new Israeli "start-up", the search for natural gas and oil.


For decades Israel relied on importing oil from overseas for the supply of its energy needs. The feeling of being a tiny nation surrounded by hostile in attitude and wealthy in oil neighbors, made it hard for the Israeli economy, especially during the world economic crisis, wars, or when there was a continuing tension in the global political arena. This may change within days.


Geological surveys have given the Leviathan structure, which is located about 135 km west from the port city of Haifa and deep in the Mediterranean Sea, the prospects of 50% of finding natural gas in commercial quantities.


The ROM (Rough Order of Magnitude) figures for Leviathan are of 16 billion cubic feet (TCF). If the figures eventually become true, the quantity of natural gas in Leviathan will supply the needs of the State of Israel for over 100 years. Israel may become an energy princess and be able to sell natural gas to its neighbors in the eastern Mediterranean for a relatively low price, due to low costs of production and simple transfer. The contribution to Israel's GDP is about $4 billion a year.


After many months of expectations, nail biting and endless waiting, the moment of truth is close. The Sedco Express, a drilling rig hired in Spain by "Noble Energy" (NYSE – NBL), arrived on October 12th, 2010 to the waters above Leviathan and started immediately with experimental drills into the core of the (hopefully) huge gas field.


The estimated costs of the evaluation of Leviathan are $150M US. In order to share the risk, Ratio, the first owner of the drilling rights and licenses in the Leviathan structure, sold the majority of its rights during the years 2007 and 2008.


Today the partnership is as follows: Noble Energy 39.66%; Delek Energy from Israel 22.67%; Avner from Israel 22.67% and "Ratio" only 15%.


Mr. Gideon Tadmor, "Delek Energy" CEO, recently said: "We are witnessing a giant revolution in Israel's Energy sector. This is a dramatic change, economically and politically."


In order to understand the drama, one short look at Ratio’s share will tell the whole story. In November 2009, Ratio’s shares traded for 1.7 cents each. The initial discovery gave the shares a boost and brought them by January 2010 to 3.5 cents. Last night Ratio traded at the Tel-Aviv Stock Exchange (TASE) for no less than 12.3 cents. The market value of Ratio is over 3 Billion Shekels, or $850M US – some investors must be very pleased these days!!


Environmental activists are deeply concerned with the effects on Israel's fragile coasts. The natural gas has to be shipped to some destination and nobody wants a huge plant to be built behind his backyard. The technical solution will focus on using and improving the current infrastructure. The positive thing about the natural gas is that it will replace coal as an energy source in some Israeli power stations and reduce the contamination of the atmosphere.


Some Israeli Government ministers and Knesset members are not satisfied with new developments and claim that the royalties (taxes) that the State of Israel will receive from the partnership is very low and should be amended retroactively. American Noble Energy warned Israel that if the royalties are changed, it will cause an unpleasant situation in which Israel will have to face the United States in an international court.


If the results of the initial drillings are positive as expected, the gas shares in Tel-Aviv Stock Exchange will witness a hectic period which is not recommended to those with a weak heart. The geological surveys are also predicting that there is an option of a "deep play": A 17 per cent chance of finding 3 billion oil barrels in a depth of 5,800 meters and an 8 per cent chance of finding 1.2 billion oil barrels in a depth of 7,200 meters, much more money with much higher prospects than winning the lottery.

Related articles: (natural gas, Leviathan, Israel, Haifa)

Share with friends Print this page Read later Recommend 0 times