On Tuesday, the government of Cyprus selected the winners of four oil and gas exploration licenses in its territory, at the end of a six month auction process, in which Israeli companies and businesspeople participated. French energy giant Total emerged as the biggest winner after being awarded Block 9 with Russian partners, and Block 11 by itself. Israel's Delek Group Ltd. (TASE: DLEKG), together with its partners, Woodside of Australia and Italian companies ENEL and Edison, bid for Block 9, which is considered highly attractive. The remaining two licenses, Blocks 2 and 3, were won by a joint bid from Eni of Italy and Kogas of South Korea.
The results of the auction are a disappointment for the Israeli bidders. The Alon-Sigma consortium headed by Dr. Eli Barnea was thought to have had a good chance of winning in Block 3. Among other Israeli bidders that lost out were a consortium of Isramco, Dor Chemicals, and Modiin, which submitted bids for the 2, 3, 6 and 9 licenses; Cyprus Opportunity, controlled by Rony Halman and Uri Aldubi of Israel Opportunity, which bid for blocks 2 and 8; and Emanuel GeoGlobal controlled by Ofer Nimrodi, which bid for blocks 8, 9 and 11. Following the announcement of the results, Israeli sources estimated that Israeli bidders still stood a chance of winning some of the 8 licenses that have still not been awarded. Cyprus originally published tenders for 12 license areas, and at present it is not clear when the fate of the remaining licenses will be decided.
Alongside the disappointment, Israeli energy entrepreneurs also expressed admiration for the way Cyprus has succeeded in attracting some of the biggest international companies to its waters. "The companies that went into Cyprus are in a different league from the ones we know," one of them said to "Globes". "Credit is due to the Cypriot government for having succeeded in one year in bringing in international companies that Israel has unsuccessfully been trying to attract for years."
Follow Cyprus's example
The vigorous activity in Cyprus, compared with the feebleness that has taken hold of the Israeli energy industry, was one of the main topics of discussion at the annual Eco Energy conference at Kfar Maccabia this week. The upcoming elections have cast a long shadow over the future of the three most important government moves in the energy industry currently underway: the recommendations of the Tzemach committee on gas export policy, awaiting government approval; the setting of government policy on encouraging renewable energy after 2014, which is waiting on publication of the Kandel committee's recommendations; and reform at Israel Electric Corporation, which awaits decisions by the government. These three processes, which have so far progressed at a snail's pace, are now liable to go into deep freeze, until a new government takes office. Environment Ministry director general Alona Sheffer-Karo has even demanded that the recommendations of the Tzemach committee should be reopened, claiming that they are based on overestimates of the supply of gas in Israel, and underestimates of expected demand for gas in the Israeli economy.
Several key people in the energy industry called on Prime Minister Benjamin Netanyahu to make the required decisions: IEC chairman Yiftach Ron-Tal, IEC workers committee chairman Miko Tzarfati, Delek Drilling CEO Yossi Abu, and Yosef Abramowitz, founder of solar energy venture Arava Power. They were joined by Steven Wardlaw of UK law firm Baker Botts, one of the leading firms in the energy field, who said, "Israel is lagging behind Cyprus in the race to construct a liquefaction installation, and I say that with British understatement."
Dr. Amit Mor, joint CEO of Eco Energy, said that the Cypriot government had formulated a clear vision, and was acting energetically to fulfill it, despite the tough financial crisis in which it finds itself and its request for EU aid. Among other things, it has a plan to construct a liquefaction plant at an investment of $10-15 billion for the purposes of exporting gas, at Vasilikos, in the south of the island. The government is negotiating with several parties, among them Noble Energy, on participation in construction of the project and its operation. In Israel, we remember Prime Minister's Office director general Harel Locker's promise made in March to head a committee for removing bottlenecks in the energy industry, a promise yet to be fulfilled. The Minister of Finance and Minister of Energy and Water Resources recently appointed former Eilat Ashkelon Pipeline Co. chairman Gen. (res.) Amos Yaron in charge of expediting natural gas development, but the choice of Yaron has aroused considerable opposition in government, chiefly at the Ministry of the Environmental Protection. "We could follow the example of Cyprus, where the matter was given the status of a national project," says Mor, "The Cypriots are on the way to exporting gas by the end of the decade."
Mor believes that the government's foot dragging is liable to damage the plans of Delek and Noble Energy to bring in a strategic partner to develop the Leviathan reserve. "Globes" recently revealed that negotiations with Australia's Woodside had reached an advanced stage. In Mor's view, "It will be hard for the Leviathan developers and others to bring an international partner like Woodside, or even Gazprom, to commit to investment in a project when the regulators have not made up their minds on policy. It is a matter of urgency on a national scale that the government should discuss and approve the Tzemach report in order to create certainty for local investors and developers, enabling them to bring in international companies to invest in the field. It's important that policy makers in Israel understand that no-one in the world is waiting for Israeli natural gas. We are could miss the boat."
The only ray of light at the conference as far as gas exports are concerned was provided by the venture to construct a floating liquefaction plant (FLNG) that will facilitate the export of up to four BCM a year from the Tamar reserve. Under the plan, which has yet to be confirmed, the installation will be built by Daewoo in South Korea, and the gas produced will be sold to Gazprom.
This solution is considered the "next big thing" in gas exports. However, not one of the world's five FLNG projects is yet operational, and, because of that, fears have been raised that this is a costly solution and too technically complicated. In a first public appearance in Israel, Kathleen Eisbrenner, manager of the Israeli FLNG project, made clear that the venture did not require the use of new, unproven technology. Eisbrenner estimated the cost of an installation with an annual output of three million tonnes at just $3 billion, far less than the cost of a land-based installation. Support for the venture has been expressed by Sheffer-Karo, whose ministry is adamantly opposed to the project being promoted by Yaron for the construction of a land-based installation in the Eilat Mountains region. Given the anarchy prevailing in the government's dealings with the energy industry in Israel at present, that represents an achievement.
Published by Globes [online], Israel business news - www.globes-online.com - on November 1, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012