A Leviathan sized greed strikes

Jack H Barnes's picture

 

A Leviathan sized greed strikes

When
a nation becomes greedy, while not a unique event, it is rarely good
for the national long-term best interests of its citizens.  There is a
case already brewing that will be interesting to watch unfold.  The
largest energy find since the Brazilian deep-sea Tupi (new Lulu) field has been announced lately.

It is already changing the dynamics of the politics in its area.  A
nation that has always been energy dependent on imports is now going to
find itself an energy exporter.  What they do with this new source of
wealth will shape their national destiny for the next century.

For the first time since Norway,
a developed western nation with a high technology based economy has
discovered enough hydrocarbons that they can realistically change their
future, today.  There is already pressure on them to export their
hydrocarbons via underused LNG facilities in neighboring Egypt.

The implications are clear.  What happens next will decide the real
long term future of Israel.  How they adjust to this new found wealth,
both in developing the usage of the raw hydrocarbons into value added
exports and in the tax revenue generated will shape the future.

They can change over their society to one based on Natural Gas,
instead of crude oil.  While this sounds radicle, it really isn’t. 
Natural Gas is the perfect energy source for providing a single source
of BTUs.  It is the cleanest of the hydrocarbons and needs very little
processing to be put to use.

However, before the first production well is drilled, before the
first FEED contract is signed to develop either of the properties, the
nation of Israel is already tearing up the signed contracts it has with
the companies that took all the risks necessary to find this new
world-class giant resource.

This event, if it starts to be a recurring theme, will slow if not
stop the development of these fields before they can be tapped.  The
reality of the geology makes it clear that there is a significant chance
of additional giant or super giant fields to be found in the region.
They will most likely be in neighboring national waters.  You don’t find
two world-class fields next to each other and nothing else in a region.

“I am really disappointed with the recommendations,” said Gideon Tadmor, the head of Delek Energy,
the oil and gas arm of Israel’s Delek Group, a conglomerate controlled
by billionaire Yitzhak Tshuva. “It will be very hard to encourage
investors to continue to invest in this sector.”

“Tens of billions of shekels will need to be invested [to develop
exports]. In order to do that, the government needs to be friendly to
investors and give them a feeling that there is stability.”

Charles Davidson, Noble’s chief executive, said in a statement that
the company opposed tax changes applied retroactively for existing
fields.

Mr Davidson added: “Noble fails to understand why
Israel’s government take should exceed that of the United States and the
United Kingdom, where gas markets are dramatically more robust and
developed than that of Israel.”

What have been found so far are two world-class natural gas fields. 
What is unknown is how many more are in the region.  Europe may have
found its next long-term source of energy, to replace the erratic
production curve of their eastern neighbors like Russia.

The Tamar field discovered
in 2009 with 8 TCF of estimated reserves changed the long-term future
of the area.  The nation of Israel will now have a long life NG field
providing its total energy needs for decades.  The find of the Leviathan
field nearby with 16 TCF in estimated reserves has completed the
domestic energy issues for Israel.

What it has also done is unleashed a national wish to rewrite the contracts that are in place.  In doing so, Israel is now talking about taking around 50% of the value of the energy produced
While this number is less than what Norway and other major exporters
nations take, it is more than what was contractually agreed too when the
corporations paid to lease the property.

“According to the recommendations issued Monday, reserves
that begin production before January, 2014, would only have to pay an
increased tax rate after a 200% return on investment. Tamar is the main
reserve that would fall into this category. This exemption would not
apply to Leviathan, which is estimated to hold up to 16 trillion cubic
feet of natural gas, but will not begin production until after 2014.

The committee reiterated on Monday the same recommendation it made in
November, that the state leave royalties on energy discoveries at the
current 12.5%, but levy a tax of up to 62% on energy company profits.
Israel hasn’t increased taxes on the development and production of
petroleum reserves since 1952.”

WSJ

Israel could find its fields undeveloped, as the corporate risk of
further contract hostage negotiations scares away capital.  They do not
have the technology to develop the fields, and greed has killed more
than one major field development before.  The hydrocarbons will always
be there.

What Israel should do, is to embrace a natural gas society.  It burns
cleaner; it can be used in public and private transportation, &
electricity production.  In fact, if Israel were to invest in a fleet of
brand new Combined Combustion NG powered electricity plants;
they could become the electricity exporter to the region.  They have
the infrastructure already in place to quickly become a major Gas to
Electricity exporter.

Since the invention of electricity, nations in the Gulf have needed
more electricity during the heat of the summer months, Israel could fill
this growing need.  A series of modern C.C. natural gas-powered
electrical plants could change the dynamics of the electrical grid in
the region.  A stable electrical grid would help to stabilize the unrest
in some locations like Iraq during the heat of the summer.

If Israel embraces NG, both domestically and as a source of value
added exports, the nation has a chance to change its future, today.  It
also has a very real chance of killing the golden goose before it’s laid
an egg.  Greed kills, the future will be the judge.

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