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Noble Energy: The Power Line Linking Israel Across The Middle East

April 8, 2018

MIDEAST STREETS ™
A platform located at the Tamar natural gas field, located some 50 miles west off the coast of the northern Israeli city of Haifa.
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Texas-based company and its Israeli partner Delek are reshaping the economic and political landscapes in the region

“Nothing is easy here” is a common refrain in Israel and, for that matter, throughout the Middle East, where many of the comforts taken for granted and accepted as universal in the West have been assigned four-letter-word status. So it is building an entire natural gas industry from scratch in the world’s most volatile region might reasonably be expected to be an arduous process. But, to paraphrase the timeless adage, for Noble Energy—the Texas-based company spearheading Israel’s still-ongoing transformation into a potential major player—there is no better reward than triumph over trial, tribulation and layer upon layer of bureaucratic red-tape.

“The oil and gas business has been around for 150-170 years and many of us grew up in an environment in which regulatory systems and infrastructure are well established. So one of the big challenges was going into a country in which none of that existed,” explained Keith Elliott, Noble Energy’s Senior Vice President of Offshore, in a wide-ranging interview with The Media Line from his Houston office.

“That required us to work with the Israeli government and businesses to create methods to ensure things are done in a safe and reliable manner. This is also part of the big success story though—Israel has essentially gone from having no [natural gas] industry to it having a very large impact on society in less than ten years.”

Keith Elliott, Senior Vice President of Offshore, Noble Energy

Often viewed as “isolated,” Israel is, in this instance, by no means alone, with massive natural gas discoveries across the region reshaping both internal and broader geopolitical realities. “One of the things we see occurring is a common understanding of the importance that energy plays in creating prosperity and security, and this is causing countries to start working together to provide that future for their citizens,” Elliott elaborated. “You see that happening in Israel and then extending out to Jordan and Egypt. Ultimately, one sees the resources in the Eastern Mediterranean becoming part of the global energy picture as more states move to gas, a more transportable and environmentally-friendly energy-generating source.”

The story of Noble’s venture into Israel begins in the state of Oklahoma, generally not the first place in the United States one thinks of when hearing the words fossil and fuel. And while the company is today headquartered in everything-is-bigger-here-in-Houston, its origin is in humble Ardmore, the birthplace of founder Lloyd Noble.

In the mid-1990s, Israel’s Delek Group began seeking out an international partner to support its offshore explorations. “They sent a guy to Texas who cold-called a bunch of energy companies,” recounted Bini Zomer, Noble Energy’s Vice President for Regional Affairs, in a recent sit-down with The Media Line at Jerusalem’s King David Hotel. “Noble was called Samedan [Oil Corporation] at the time so it wasn’t a matter of getting to ‘N’ in the phonebook, you had to get to ‘S.’ Irrespective, [the Delek representative] initially received an unequivocal ‘no.'”

Much smaller then, Noble had little, if any, international operations, according to Zomer. Nevertheless, after learning more about the opportunity in Israel, “an executive at head office came in one day and said, ‘you know what, this looks like something someone needs to drill.'”

Bini Zomer, Vice President for Regional Affairs, Noble Energy

With that, a partnership was forged and, in 1999, Noble Energy (the company name, assumed in 2002, derives from Noble Affiliates, created as a holding company for Samedan in the 1970s) made its first small, non-commercially-viable natural gas discovery in Israeli territorial waters, a field that was, quite appropriately, named Noa (itself a derivative of the name Noah, the first of whom is relatively well-known for exploring uncharted waters). One year later, Mari B—or Yam Tethys as it is known locally—was discovered, its approximately 25 billion cubic meters (882 billion cubic feet) of natural gas having essentially created the marketplace in Israel.

Then, in January 2009, things changed dramatically with the discovery of the Tamar field, which, in retrospect, perhaps marks the beginning of a modern-day energy revolution in the Middle East that is gaining steam. Located roughly 50 miles west off the coast of the northern Israeli city of Haifa, Tamar’s reserves, totaling some 320 billion cubic meters (11 trillion cubic feet), at the time represented the largest-ever natural gas find in the Levant basin of the eastern Mediterranean Sea.

Less than two years later, however, it was relegated to second place, with Noble revealing an even larger discovery 30 miles further west; namely, Leviathan, which contains 620 billion cubic meters (22 trillion cubic feet) of natural gas and is scheduled to go online before the end of next year. (Altogether, Noble holds a 25 percent share in the Tamar field, developed at a cost of about $3 billion,  which began supplying Israel with natural gas in 2013, compared to a 39.66% stake in Leviathan, a project that required an investment of about $4 billion to advance.)

But the Leviathan reservoir, not unlike the biblical sea monster it is named after, could just as easily have remained undiscovered beneath the waters. “The oil and gas business is inherently risky,” Zomer stressed to The Media Line. “There are exploration risks and market risks but in Israel we also faced regulatory risks, which actually went too far. We were not going to move forward until the government created an investment climate [that was stable].”

In this respect, Jerusalem for many years was unable to agree on a legal framework for the natural gas industry. Torn between the political right and left, pro-market and statist, lobbyists and protesters, Prime Minister Binyamin Netanyahu at the turn of the decade oversaw the creation of a committee tasked with devising a new taxation regime. Finally, in 2011, the commission presented its recommendations which later that year formed the basis of a bill passed by the Israeli parliament. In short, the so-called Sheshinski Law—named after the committee’s head—raised taxes on gas companies’ profits from a rate of 33% to a total government take, depending on various factors, approaching 62%.

An Israeli flag prominently displayed on a platform located at the Tamar natural gas field in the Eastern Mediterranean Sea.

“The first one through the door is going to face the most challenges,” Zomer said in reference to the political and economic uncertainty that impeded Noble’s development. “Taking a step back, though, what we had were huge discoveries in a country that never expected any. The government was trying to play catch-up and was changing the rules at the same time as our company and partners had to invest billions of dollars and that caused a lot of friction.”

Since then, the impact of Noble’s discoveries have reverberated throughout the region, with the corporation in 2014 having signed its first cross-border deal to supply Jordan with $500 million of product from Tamar (the resource started flowing to the Jordanian side of the Dead Sea in January 2017). In September 2016, the company and its partners forged a follow-on 15-year, $10 billion accord with the Jordan National Electric Power Company for 45 billion cubic meters (1.6 trillion cubic feet) of natural gas from the Leviathan field.

Noble’s latest achievement is the $15 billion agreement signed in February to supply an Egyptian consortium with 64 billion cubic meters (2.6 trillion cubic feet) of natural gas over a decade. “In Egypt, there is an understanding for some time now of the tremendous growth in demand [for energy],” Elliott told The Media Line. “It is a country of some 100 million people that is expanding at 2.5 percent per year and it has one of the lowest per capita densities of electricity usage of any nation in the region. So there has been a recognition on the part of both the government and commercial entities that power in the form of clean and affordable energy is essential to fuel the population and economy.”

Zomer described the pact as a “milestone” and commended all parties involved, primarily Egypt’s Dolphinus with which the agreement was formally contracted. “The Egyptians have been consistent throughout this process even following their own big [natural gas] discovery at Zohr [estimated at 850 billion cubic meters/30 trillion cubic feet in place],” he maintained. “Whereas [in Israel] you would hear certain politicians who are against exports or trying to stop these projects say that Egypt doesn’t need Israeli gas anymore because it has its own, the Egyptians, [by contrast], always said at the highest levels ‘we need Israeli gas and we want Israeli gas.'”

The transaction with Egypt will not come without its challenges, especially when considering that the pipeline once carrying gas to Israel through the Sinai Peninsula—where an Islamic State affiliate has since taken root—was bombed numerous times in the wake of the so-called Arab Spring uprising in 2011. The offshore reservoirs, in general, are prime targets for the Jewish state’s enemies, including Hamas in the Gaza Strip and Hizbullah in Lebanon, the latter of which has publicly threatened to attack the installations in a future war.

“We’ve been in the region [for two decades] and in every place in the world that you work in there are different obstacles that you learn to address and cope with,” Elliott responded when asked about Israel’s precarious security situation. “Since we first started producing gas in 2004 we have not had a single interruption in the flow because of any sort of safety issue. It is a reflection of our adaptiveness and ability to continue to do business in the face of uncertainties, whatever form they take. And I don’t expect this to change moving forward.”

While the discoveries will have broad regional implications, there is no denying, nor overlooking, the benefits to Israel itself, where Noble employs some 200 people. For example, the central bank forecasts the state will generate almost $20 billion in taxes and royalties from the Tamar and Leviathan fields over their lifespans, a figure that does not include savings associated with shifting from the consumption of more expensive fuels to natural gas. To this end, the Israeli Energy Ministry estimates that between 2013, when the Tamar field began supplying product to the Israel Electric Corporation, and the end of 2016, Jerusalem saved nearly $9 billion in energy costs.

Nor does this incorporate in the ancillary benefits, many of which can also be quantified. According to Israel’s Ministry of Environmental Protection, carbon dioxide emissions have decreased by 48% since the Tamar field went online five years ago. Overall, the government has saved an estimated $2.5 billion in air pollution-related costs.

The current projections also do not factor-in future discoveries, which, in Elliott’s estimation, are a near-certainty. “If you look at the broader area, the best independent studies show that there are [3.5 trillion cubic meters] of gas in total and, to date, there has been a little less than half of that discovered. This is an emerging hydrocarbon basin and it is much like the experience we have had in other parts of the world. You get the easy stuff first and then the next most difficult and finally another round. The real question is whether those [higher-order] findings are economically viable and if the conditions exist to cause companies to invest.”

For his part, Zomer related an anecdote, conveyed to him by Elliott, to paint a geological picture. “When you take a map of Israel’s [territorial waters] and instead of viewing it from a north-south perspective, you look at it from an east-west vantage point, it looks a lot like the Gulf of Mexico. In the 1980s,” he continued, “people thought that [body of water] was running out of oil but because of innovation companies were able to look for different plays.

“You can see that Israel’s offshore finds follow a similar natural progression, the shallow discoveries first and then the deep-water ones. Even the U.S. Geological Survey has talked about much more potential. There is no reason to believe that things in Israel would behave differently than elsewhere.”

In this respect, the sea’s depths have, in turn, made the sky the limit. With Israel’s state coffers being filled and regional bridges being built, the hope is for the Jewish state to increasingly become integrated into the Middle East—that one day soon Arab leaders will stand before their people and proudly hail bilateral economic cooperation with Israel.

“It is a function of being able to build trust throughout the region and I think governments have taken some very bold stands to overcome old animosities and anxieties in order to act in a way that is focused on bringing prosperity,” Elliott stressed. “It isn’t very often that you can come into a place and bring positive change to a nation, and then to a group of nations. We’ve seen the potential that energy can bring throughout the Middle East.”

Zomer has seen this potential actualized on the micro level firsthand, having on multiple occasions visited both Amman and Cairo. “I sit in a restaurant in these cities and you see people and they come and they talk. And when we signed a deal with the Palestinians one of our partners spoke in Arabic, whereas a Palestinian spoke in Hebrew.

“It’s hard not to feel hopeful when you’re in these settings,” he concluded, “but it is important to remember that the gas is not the Messiah and it will not bring peace on earth. It provides a tool for the governments and the peoples to have interactions and relationships. It does create opportunity. What we do with that opportunity is up to us.”

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