For Noble gas field, Middle East proves most profitable customer

HOUSTON – Noble Energy’s first deal to export natural gas from Israel shows that surrounding Middle Eastern countries may be the most lucrative market to unload massive reserves of an offshore field called the Leviathan.

Analysts on Monday applauded the Houston oil and gas producer’s $1.2 billion deal to provide 4.75 billion cubic feet of natural gas to a Palestinian power company over two decades, after production begins in late 2017.

Noble “can actually make better returns selling gas to Palestine and Jordan than exporting gas to Europe because the upfront investment is miniscule in comparison,” said Fadel Gheit, an analyst with Oppenheimer & Co, in an interview Monday. “It would take only a few miles of pipeline to send gas to Jordan, a fraction of the cost” of building liquefied natural gas export facilities, he said.

It was the first time Noble and its Israeli partners on the Leviathan project have signed away any amount of gas from the massive field, which in 2010 was the largest offshore discovery of the past decade with reserves of 19 trillion cubic meters of gas.

The price tag of the Palestinian deal implies that Noble  got a higher price for the natural gas than expected, at about $7.15 per 1,000 cubic feet of natural gas compared to an anticipated $6.25 per 1,000 cubic feet, analysts with Tudor Pickering Holt & Co. wrote Monday.

Fuel of choice

In the Israeli market, natural gas has become “the fuel of choice” as new independent power producers have come online and local distribution companies have grown, doubling the number of Noble’s customers since last year, said Keith Elliott, senior vice president for the company’s Eastern Mediterranean region, during an analyst event last month.

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Noble expects Israel’s demand for gas to grow 17 percent annually for the next five years, but even that increase leaves a great deal of supply at the Leviathan and Noble’s nearby Tamar field, prompting the partners to explore several options to export throughout the region and to other parts of the world.

Export options

The Israeli Supreme Court  upheld the Israeli government’s authorization for energy companies to export up to 40 percent of the country’s discovered resources, the bulk of which comes from the Leviathan. In the surrounding region, Noble is looking at opportunities to export 2.5 billion cubic feet of natural gas per day to countries like Egypt and Jordan, Elliott said.

That’s a much cheaper and possibly more profitable venture than Noble’s other export options, such as building LNG facilities to send natural gas to Europe and compete with Russia’s network of gas pipelines, said Gheit.

“It’s very hard to compete with the Russians. They’re using a pipeline to get a very hefty price for their gas,” Gheit said. “This is the cheap route.”

He added that several risks come with building LNG facilities over half a decade: “You could spend all of this money and the world could change in two to three years,” he said. Sending gas to Europe would “entail a huge investment.”

Noble’s shares dipped about 1 percent Monday to $65.75 at the close of trading on the New York Stock Exchange.

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