The quantity of natural gas in the Leviathan reservoir is significantly less than the amount reported by the partners in the reservoir, according to a resources report prepared by Dutch consultation and auditing company SGS for the Ministry of Energy. According to this report, the quantity of gas in Leviathan is 20% less than previously reported, which is liable to lower the profits from it by billions of dollars.
Over the next two weeks, SGS and the gas companies are expected to hold continual meetings in The Hague for the purpose of reaching understandings. Ministry of National Infrastructure, Energy, and Water Resources Petroleum Commissioner Alexander Varshavsky is expected to publish the report in the coming weeks. Reports of differences in the estimated quantity of gas in Leviathan were published over a year ago, but the difference at that time was only 10-15%.
The quantity of gas is determined by analyzing rock cores extracted from the seabed where the gas was discovered. As more seismic tests are conducted, the picture becomes clearer, and it becomes possible to estimate the quantity of gas in a given reservoir more precisely. The company making these tests for Leviathan is the Netherland, Sewell & Associates Inc. (NSAI) engineering firm, whose tests have found more than once that the quantity of gas was greater than previously thought. When the Leviathan reservoir was discovered in late 2010, the quantity of gas in it was estimated at 16 TCF, while the partners reported it as 19 TCF in May 2013.
Last July, the partners reported a further increase to 21.9 TCF. The company also found that the quantity of natural gas condensate rose from 34 million to 40 million barrels. The most recent results were given to the Ministry of National Infrastructure, Energy, and Water Resources to be checked, which gave them for further analysis to SGS. SGS then calculated that Leviathan contains 16.5 TCF, 5.5 TCF less (25%) than NSAI's estimate.
In order to understand the significance of the new estimates, consider the Yam Tethys reservoir, which contained 1 TCF of gas, and supplied the entire needs of the Israel economy for 10 years. Assuming that each mmbtu is sold for $5.45 (the average gas price in Israel in 2014), revenue from each TCF of gas comes to $5.5 billion, meaning that 5.5 TCF less gas translates to $30 billion less in revenue over the years (not capitalized to the present time).
Whence the difference?
For over a year, the Ministry of National Infrastructure, Energy, and Water Resources and its consultation firm have been holding meetings with the Leviathan partners and their consultation firm. In the meetings at the office of Noble Energy in Houston and the offices of SGS in The Hague, the parties are trying to clarify the reason for the gap in their estimates. The gas companies assert that the reason is simple: SGS is unprofessional, and lacks expertise in estimating reserves.
It is also being alleged that Noble Energy, a US company, and Australian company Woodside (which considered buying 25-30% of the reservoir) conducted their own estimates, and reached a similar result to the one reported by the partners. The Ministry of National Infrastructure, Energy, and Water Resources says that the report is not final, and that the final tests are being conducted now. Meanwhile, the Leviathan partners have asked for more meetings with SGS, which are expected to take place in The Hague in the coming weeks. Ministry of National Infrastructure, Energy, and Water Resources sources say that the report is slated for publication in the coming weeks. Gaps in estimates between two companies are not a rare occurrence.
Both the gas companies and the Ministry of National Infrastructure, Energy, and Water Resources explain that two consultation companies almost never reach the same result, because each company has its own working methods, and new figures are discovered as more tests are conducted and more wells are drilled. At the same time, the difference is usually only a few percent. Differences between NSAI and the consultation firm hired by the state were also discovered for the Tamar reservoir, which is currently supplying gas to the Israeli economy, but those differences were insignificant, "like those happening all the time," according to a Ministry of National Infrastructure, Energy, and Water Resources source. A similar thing happened in the Cypriot Aphrodite reservoir. Last November, Delek Drilling Limited Partnership (TASE: DEDR.L) reported a rise in the gas reserves there from 4 TCF to 4.54 TCF, a 12% increase. It also appears that there are still disputes between Delek Drilling and Noble Energy (the other partner in Aphrodite) about the up-to-date estimated quantity of gas.
Less gas? There is a lack of demand in any case
Economic sources assert that even if the Ministry of National Infrastructure, Energy, and Water Resources publishes figures showing that the quantity of gas in the reservoir is 25% lower, this should not affect the quantity of gas permitted by the state for export, among other things because the demand for natural gas in Israel is significantly lower than projected. The government decided that Israel should keep 540 BCM for itself, and the gas partners would be allowed to export the rest. The recommended quantity for export was based on a forecast domestic demand of 501 BCM by 2040. Economic sources have estimated in recent months that actual consumption will be less than 460 BCM, and the Ministry of National Infrastructure, Energy, and Water Resources predicts still lower demand - 436 BCM by 2040, 13% less than estimated by the Tzemach Committee. The Ministry of National Infrastructure, Energy, and Water Resources stated, "Through its personnel and consultant companies, the Ministry routinely and regularly checks every figure relevant to oil and gas exploration and production. No final report on the natural gas reserves in Leviathan has been received yet by the Ministry. The Ministry is acting through all available means to bring forward the supply of gas to the Israeli economy, which will lower the cost of living and benefit the entire Israeli public." The Leviathan partners stated, "No change has occurred in the estimates for the natural gas in the Leviathan reservoir as included in the contingent resources report published by the partners in the reservoirs. This resources report was prepared by NSAI, an independent company that is one of the world leaders in estimating oil and gas resources, according to the systematic rules for petroleum resources management enforced by the authorities. The Ministry of National Infrastructure, Energy, and Water Resources is currently using external consultants to make a separate estimate of the resources in the reservoir.
"The partners in the Leviathan reservoir are in contact with the Ministry of National Infrastructure, Energy, and Water Resources, and to the best of their knowledge, this process has not yet been completed, and will take into account all the relevant and up-to-date information about the reservoir."
Published by Globes [online], Israel business news - www.globes-online.com - on June 3, 2015
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