Less than ten years ago there was almost no interest in exploration in the Mediterranean. Now the Levantine Basin, stretching from Egypt across to Turkey, is the site of the world’s biggest deepwater gas discovery of the last decade and new waves of interest are lapping south and westward, to the coasts of Egypt, Malta, Italy and Spain. For the three independents that are investing most heavily in these recent discoveries there remain issues of regulatory uncertainty, particularly their need for Israeli export licences that will make the next level of investment viable. For the world, there is the question whether this unexpected resource wealth will heighten tension in such a fractious neighbourhood or whether it might, as some hope, help build bridges towards peace.
The US Geological Survey estimates that there are 122 Tcf of natural gas in the Levantine Basin. Since 2009, 35 Tcf has been discovered in Israeli and Cypriot waters, almost all in three fields – Aphrodite, Tamar and the ‘super-giant’ field Leviathan. It is estimated that almost 1.7 Bbo also wait to be tapped.
Significant Finds for Israel
Significant on and offshore gas finds in Egypt in the 1990s persuaded Israeli entrepreneur, Gideon Tadmor, to begin drilling, first onshore and eventually moving out into deepwater. His company, Avner Oil and Gas, later part of the Delek Group, soon realised they needed foreign expertise for such depths. Many oil companies were reluctant to invest for fear of jeopardising their relationships with neighbouring Arab countries but the small Samedan Oil Corporation signed up, later becoming Noble. In 1999 the partners drilled their first well and a year later made their first commercially viable discovery of 1 Tcf at the Mari-B field in the Yam Tethys gas field.
However, it was another ten years before the next significant find. Tamar, approximately 90 km off the coast of Haifa, was discovered in 2009 and began producing gas in March this year. The field lies in 1,700m water depth and required drilling of almost 5,000m to reach the sub-salt, lower Miocene structure. However, its estimated 10 Tcf has been dwarfed by the Leviathan field’s 17 Tcf, approximately 50 km south-west, discovered in 2010. In total, there have been six discoveries in Israeli waters, with a total of approximately 36 Tcf gross resources. In addition, in 2011 Noble announced a further discovery, Aphrodite, 34 km west of Leviathan and in Cypriot waters. This field has an estimated 3–9 Tcf.
For the moment, Leviathan remains unexploited. The most contentious, but not the only, issue to be resolved is the amount the Israeli government will allow to be exported. An Israeli inter-ministerial committee submitted a report last August recommending that just over 50% of production – 35 Bcf – should be exported while the remainder should be used for domestic consumption in Israel. This was seen as a victory for the investors but there is no final agreement. In December 2012 Australian company Woodside Petroleum announced that it is poised to take a $1.25 billion stake in Leviathan, alongside Noble and Delek, dependent on government approval of a high level of exports. The three largest investing companies are also hoping for a guaranteed level of taxation, Noble having already experienced a punishing increase from 35% to near 65% in 2010 after investing $1bn into Tamar. In a further complication, Delek and Noble are also waiting on a ruling from the Israeli competition watchdog on whether they currently control too much of the sector.
The value of the finds depends on several other factors, including how the gas is transported and its destination. Gas from Tamar is being piped to the Mari-B structure and onwards through an existing pipeline to the Ashdod refinery in southern Israel. However, the increased volumes predicted to come from Leviathan require new thinking. The most obvious target market is Turkey, which would allow onward shipment to Europe. To this end, Israeli Prime Minister Benjamin Netanyahu has made moves towards an apology for the 2010 storming of the Mavi Marmara Gaza-relief flotilla, when eight Turkish citizens were killed plus one American-Turk, but he has stopped short of Turkish demands for compensation and the lifting of restrictions on civilian goods into Gaza. Relations between the two states remain tense, leading the US to urge Turkish President Erdogan to put off a planned May visit to Gaza, a visit that Israel perceives as an act of hostility. Should the Turkish export plan succeed, one possible method of delivery would be an under-sea pipeline going through Cypriot waters, effectively bypassing Lebanon and Syria.
A second option that would allow Israel to gain access to the European market is to pipe the gas to Cyprus where it could be processed and then exported. However, cooperation with the island is likely to antagonise Turkey, which has already warned oil companies off exploring Cypriot waters. Russia is also unlikely to be happy with increased competition for the European market.
Alternative plans include a relatively short (and therefore less expensive) pipeline to the smaller market of Jordan. Reversing the pipeline that currently brings cheap Egyptian gas to Israel through the Sinai Desert – and which has been repeatedly bombed since the Arab Spring – is also under consideration. A liquefied natural gas plant, either at sea or onshore, is a further option that might allow Israel to access the wider Asian market and in February this year it was reported that talks were underway with Russia’s Gazprom regarding the possibility of building a massive floating LNG vessel.
So far, there has been no outright conflict with Lebanon over ownership, although the Lebanese claim that Leviathan extends into their subsea waters and have submitted maps to the UN to back their claim: the difficulty is that Israel has never ratified the 1982 UN Convention on Law of the Sea which divides world subsea mineral rights. The Lebanese also claim Tamar as theirs and are reportedly supported by the Obama administration. In the meantime, the Lebanese are pursuing the possibility of fields clearly within their waters, with some experts suggesting they could be commercially produced before the end of the decade (see page 36).
The exacerbation of conflict between Israel and the Palestinian Authority is more likely, however. Development of the Gaza Marine gas field, approximately 30 km offshore and therefore within Palestinian waters, has been on hold since the late 1990s, primarily because of disputes over Israel refusing to pay market prices for surplus gas and concerns over revenues going to the Hamas government.
Meanwhile the Cypriot government has offered shares in the country’s future oil and gas wealth as an incentive to keep investors in the country as it grapples with its financial crisis. However, that wealth is dependent on further discoveries and even Noble is not bidding for the one block with confirmed discoveries, Block 12. One discouraging factor may be strong objections from Turkey, the only UN member to recognise Northern Cyprus as an independent entity, and which has the prospect of discoveries in its own waters. Turkey has been exploring its south coast since 2007 and farm-outs and joint ventures with the Turkish Petroleum Corporation have been offered since 2011. In 2013 companies seem more energised by prospects off the coast of Egypt, where a recent oil licensing round attracted a large number of bids.
Given the many different players and the complicated dynamics of the Eastern Mediterranean, the extent to which the Levantine Basin will eventually be exploited is open to question. In the meantime, it unfortunately appears more likely that the discovery of hydrocarbons will fuel tensions, rather than bring peace to this conflict-ridden neighbourhood.