2020 revenues from Leviathan, Tamar to fall by up to 20%


London — Israeli gas demand could be between 5% and 9% lower than expected through 2021, Israeli gas producer Delek Drilling said late Wednesday, as the coronavirus pandemic continues to impact consumption.

Delek — a partner in the giant Tamar and Leviathan gas fields offshore Israel — added that its revenues from the fields would be 10%-20% lower in 2020 than had been forecast and 5%-15% down in 2021.
“From mid-March, a drop in demand has been recorded with a corresponding decrease in the sales of gas produced from the Leviathan and Tamar reservoirs, relative to [our] forecasts,” Delek said.

Gas from Tamar is supplied to the Israeli domestic market, while Leviathan gas also supplies Israel, as well as to Egypt, since the start of 2020. Small volumes are also supplied to Jordan from the fields.

Israeli gas demand last year was expected to total some 11.3 Bcm, according to the country’s energy ministry.

Given the country’s rapid switch toward gas for power generation — thanks to its huge offshore gas discoveries — Israeli gas consumption had been expected to grow by around 12% annually to 2040.

“Delek estimates that insofar as the COVID-19 crisis endures and the slowdown in the global economy continues, it will continue to adversely affect the demand for and prices of energy products,” it said.

It said its revenue assumptions were based on the demand decline forecasts, lower prices and “a decrease in the contract quantities to be sold under the agreements for export from [Tamar and Leviathan] to the minimum binding quantities under the agreements.”

Delek and its partners — operator Noble Energy and Israel’s Ratio Oil — started production from Leviathan, which holds 22 Tcf (620 Bcm) of recoverable gas reserves, on December 31.

The 10 Tcf Tamar field started production in April 2013.

Noble optimism
Operator Noble last week said it was hopeful of a demand recovery in the East Mediterranean markets in the third quarter.

Noble CEO David Stover, speaking after the company released its Q1 earnings, said that demand “in the trough of the COVID impact” over the past few months had been reduced by 10% to 15%.

“I think that bodes well as we see these countries return to work for the second half of the year,” Stover said. “And you’re still going to see seasonal demands. The third quarter is going to be the high quarter for the year.”

Noble chief operating officer Brent Smolik said Israel and Jordan appeared to be several weeks ahead of the US in terms of reopening their economies, “which is encouraging for demand recovery this summer.”

“We also anticipate a step-up in sales volumes in the second half of the year due to seasonal demand and increased quantities in the Egypt contract,” Smolik said.

Egyptian gas supplier Dolphinus Holdings began importing gas from Leviathan in January under a 15-year contract for total volumes of 85 Bcm.

Israeli gas is piped via the EMG pipeline to Egypt which has been engineered to allow reverse flows in the Israel-Egypt direction.

Smolik said Noble was currently preparing to install compression equipment to expand the EMG pipeline capacity for higher Egypt sales.

While there are clauses in the long-term contracts that allow for a temporary reduction in take-or-pay obligations when prices are at sustained lows, Noble said its customers in Egypt were not asking about taking less gas, rather they want assurances that the extra capacity would be available from July 1.

Smolik added that contracts have price floors and that “everybody is performing on those agreements.”

He said gross production from Tamar and Leviathan had been up to 1.8 Bcf/d at peak demand days in January and February. “So really, we think of the uncertainty more as the volume uncertainty in the near term because of the impacts on demand in the near term.”

“We hope to get back on normal trends this summer,” he said, adding that with Leviathan fully installed, Noble has a total of 2.3 Bcf/d of gross deliverability.