What to do with so much gas?

Israel's natural gas reserves quadrupled at 6am this morning when Noble Energy (NYSE:NBL) announced the results of its seismic survey of the Leviathan gas field. Alongside the dramatic announcement by Noble Energy about the Leviathan findings, there was also the report that estimates of the gas reserves in the Tamar prospect have risen from 207 to 238 billion cubic meters. So what to do with so much gas? Israel can afford to increase its consumption and export.

The increase in Tamar alone is equivalent to the entire Yam Tethys gas field, which has been the main supplier of natural gas to Israel since 2004. On the margins of the announcement, it said that the amount of gas in the Tamar prospect should supply all the needs of the Israeli economy for 35 years.

Israel's annual natural gas consumption amounts to 5 billion cubic meters. According to the Gas Authority's predictions, which are considered conservative, annual gas consumption in Israel will increase to 10.2 billion cubic meters by 2019 and 15.5 billion cubic meters by 2029. Analysts like Clal Finance's Yaron Zer expect demand for natural gas in Israel to rise much faster.

The new gas discoveries enable Israel to reevaluate its energy policy planning. For example, Israel Electric Corporation (IEC) (TASE: ELEC.B22) could lift its ceiling of 40-45% of gas use in electricity production. It would be worthwhile for industry to use more natural gas. It will also be possible to use natural gas as an alternative to gasoline and diesel in public transport. In addition, the new discoveries will allow Israel to keep far larger strategic stocks for emergency use - for example by refilling the Mary prospect, which is rapidly emptying out.

Even if only part of the findings of the Leviathan survey are realized, then it is clear that Israel will not need all the offshore gas for itself. There are potential export clients. Cyprus needs natural gas but only in small quantities. Notwithstanding the current diplomatic tensions with Turkey it would be possible to lay an underground pipeline to supply that country's large natural gas needs. It might also be possible to then link up with a planned gas pipeline from Azerbaijan through Turkey to Southern Europe.

Perhaps the best export option would be to set up a liquid gas (LNG) infrastructure and thus open up huge markets in Japan, Korea and Taiwan which today consume two thirds of the world's LNG production.

Published by Globes [online], Israel business news - www.globes-online.com - on June 3, 2010