Gas Supply To Remain Stable

BMI View :  Despite Noble's decision to downgrade its targets for Israeli gas sales due to the ongoing conflict in Gaza,  we do not anticipate a prolonged threat to gas supplies.

In its third quarter guidance, Noble Energy indicated that it anticipates a decline in natural gas sales to Israel, due to the ongoing conflict in Gaza. In the first two quarters of 2014, the company's Israeli gas sales averaged 6.2mn cubic metres per day (mcm/d). It is unclear how far these volumes are expected to fall, although we believe the amount to be relatively small.

Noble currently supplies gas from offshore fields via subsea pipeline to an onshore terminal at Ashdod. Any disruption to the supply from Noble could be cause for concern, as these offshore fields supply all of Israel's domestic gas consumption. However, the risk of disruption is minimal.

Tight Supply Picture
Israel Gas Consumption And Production (bcm)

BMI View :  Despite Noble's decision to downgrade its targets for Israeli gas sales due to the ongoing conflict in Gaza,  we do not anticipate a prolonged threat to gas supplies.

In its third quarter guidance, Noble Energy indicated that it anticipates a decline in natural gas sales to Israel, due to the ongoing conflict in Gaza. In the first two quarters of 2014, the company's Israeli gas sales averaged 6.2mn cubic metres per day (mcm/d). It is unclear how far these volumes are expected to fall, although we believe the amount to be relatively small.

Noble currently supplies gas from offshore fields via subsea pipeline to an onshore terminal at Ashdod. Any disruption to the supply from Noble could be cause for concern, as these offshore fields supply all of Israel's domestic gas consumption. However, the risk of disruption is minimal.

Tight Supply Picture
Israel Gas Consumption And Production (bcm)

According to our Middle East Country Risk analysts, the current conflict offers almost no physical threat to supply. The terminal at Ashdod is within range of Hamas missiles, but the Israeli 'Iron Dome' anti-missile system broadly cancels out this threat.

It is more probable that Noble is factoring in indirect disruptions lower down the supply chain, which would assume a continuation of the current level of violence. Violence has escalated in recent weeks, with Israel's launch of a ground offensive in the Gaza strip, 'Operation Protective Edge'. However, our Country Risk analysts are expecting a ceasefire agreement within the next three to four days. Hamas is badly disadvantaged militarily and suffering heavy losses. On the Israeli side, Netanyahu is under growing pressure from the US, as the Palestinian civilian death count continues to climb. Although our analysts do not see the ceasefire provide a lasting solution to the conflict, they do expect de-escalation in violence following the ceasefire.

Nevertheless, the downgrade by Noble does hint at the continued threat to energy security posed by rising geopolitical tensions in the Middle East region. In Gaza, gas is also a highly politically sensitive issue. Since a significant gas discovery was made in 2000 offshore Gaza, many have seen the ongoing conflict as a competition for control over resources. Gaza has been unable to develop the resource, due to the relations between Hamas and Israel, and the wider international community, drawing stark contrast to the ongoing development by Israel of the prolific Leviathan field.

Although we see no material threat from the current conflict, this development also highlights an area of fragility in the Israeli gas supply. Despite the country being self-sufficient, the single gas receiving terminal at Ashdod is the only point of entry from the offshore fields to the Israeli gas grid. This could incentivise a more rapid move on the development of the Leviathan field, Israel's largest offshore resource, which would require the construction of a second onshore gas-receiving terminal further up the coast. We are currently forecasting Leviathan production to come onstream in 2018.

Connecting to the Leviathan field would offer diversification of supply that could be critical for the consistency of gas delivery to Israel. This is particularly pertinent if the violent conflict with Gaza continues over the longer-term. It should also be noted that Noble is the operator of the Leviathan field.

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Related sectors of this article: Oil & Gas, Upstream, Development, Production, Transportation
Geography: Israel
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