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Discoveries of vast gasfields off Israel provides opportunity for Woodside

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Thursday, October 25th, 2012

As reported in The Australian Newspaper:

“LET me tell you something that we Israelis have against Moses,” former Israeli prime minister Golda Meir once joked.

“He took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil!”

Unlike Australia, Israel’s lack of resources meant that the nation had to carve a living out of the desert.

But recent discoveries of vast natural gasfields in the deep waters off its coastline have begun to change the energy equation for the country — and may provide a new expansion opportunity for Woodside Petroleum.

Woodside is not talking about the idea.

But when Financial Services and Superannuation Minister Bill Shorten meets Woodside chief executive Peter Coleman on their joint trip to Burma this week it is expected to be one of their topics of conversation.

When Shorten visited Israel, leading a trade delegation in May, he was asked by Israeli Prime Minister Benjamin Netanyahu if Australia could provide some help with the development of the gasfields off the Israeli coast.

There is no doubt about the potential of the gasfields.

But the political complexities of doing business with Israel, particularly for international energy companies which also do business with the Arab states, has constrained many other potential players such as Royal Dutch Shell, which has experience in the liquefied natural gas industry.

But even before the Shorten visit, it appears that Woodside was interested in becoming involved in the LNG business off the coast of Israel.

There are discussions behind the scenes about how and when.

Woodside, with its expertise in LNG garnered through its stake in the North West Shelf off Western Australia, might be able to help the Israelis in exploiting their new offshore gasfields.

Woodside’s Coleman has made no secret of his interest in expanding the group’s operations offshore, particularly in strategic partnerships, since he took over the top job in May last year.

The company has two multi-billion-dollar LNG projects off the WA coast — North West Shelf and the $15 billion Pluto project, which began production earlier this year.

It plans the development of two more major projects, but Coleman is aware of the importance of diversifying the company’s risk with other international projects — projects that can also provide outlets for the cashflow from its Australian operations.

In May, Woodside announced that it had joined a consortium to bid for natural gas exploration blocks in the Mediterannean Sea, off the island of Cyprus.

There are understood to be about 15 different consortiums bidding for nine permits that are expected to be decided before the end of the year.

The Australian company has a 30 per cent stake in the bidding company, working alongside two Italian companies, Enel Trade and Edison International, the Italian arm of the US-based international energy company. The fourth player in the group is an Israeli company, the Delek Group.

Commenting on the bid, Coleman said the gasfield off the coast of Cyprus was “an emerging basin, not a frontier basin”.

Coleman knows quite a lot about the area.

The gasfields off the coast of Cyprus are next door to the big gasfields discovered off the coast of Israel in recent years.

The largest field is the appropriately named Leviathan. It’s below an area known as the Levantine basin that is more than 1500m deep.

Exploration for gas off the coast of Israel has been going on for some time but the real discoveries — discoveries that could dramatically change the energy and economic equation for Israel — have only been made in recent years.

One company involved in exploring off the coast of Israel is a small Houston group called Noble Energy, which has emerged as one of the major players in the industry alongside Delek and another Israeli company called Avner Oil & Gas.

The first big breakthrough for those companies was the Tamar field, off the northwest coast of Israel, which is estimated to have about 10 trillion cubic feet of natural gas. This was discovered in 2009.

This was followed up by the discovery in 2010 of the much bigger Leviathan field about 130km off the coast of the northern Israeli town of Haifa, about 25km east of the Tamar field.

Leviathan has about double the estimated reserves of the Tamar field.

The first gas deliveries from Tamar are due to come ashore next year.

Noble, Delek and Avner have big plans to begin production from the massive Leviathan field from about 2015.

There have been reports recently that the group is looking to sell off about 30 per cent of its interest in the gasfield to help raise the substantial amount of funds they will need to get the gas out of the deep seas.

Woodside has been mentioned as a potential investor in the field along with bidders from South Korea.

A spokesman refused to comment when asked last week.

Interestingly, on Friday Woodside announced plans to buy a 40 per cent interest in an exploration block off the coast of Burma, from South Korean company Daewoo, which will continue to be the operator of that block.

There is more than just geography linking the gasfields off the coast of Cyprus and Israel.

Surrounded by enemies, the Israeli government has been pushing for closer ties with the government of Cyprus and there is talk of a possible undersea gas pipeline between Israel and the island.

Clearly Delek is interested in expanding eastward from its current gasfields into the waters below Cyprus in conjunction with Woodside, with its decades of experience in the LNG business.

And Woodside would make a natural partner to be an investor with Delek in its existing fields.

Of course, as with anything to do with Israel, nothing is quite so simple and there are many issues to be considered.

But when it comes to Israel and Woodside, it may be a question of “watch this space