This Natural Gas Find Could Completely Change the World As We Know It

One thing that makes the energy sector so intriguing is the constant overlap between markets and politics. In many ways, energy security is synonymous with national security, and the supply and demand needs of the oil market can make the most unlikely bedfellows. One country that has been at the center of energy and politics for decades has been Israel. For years the country has been dependent upon foreign energy sources, but a major discovery by Noble Energy (NYSE: NBL  ) and its partners has turned this situation on its head. Let's look how this massive natural gas find could affect both the political landscape and the pockets of major oil companies like ExxonMobil (NYSE: XOM  ) .

With a name like Leviathan, it has to be big
In 2010, Noble Energy and its partners found something in Israel's offshore region that the country had been looking for since the oil embargoes of the 1970's; its own hydrocarbons. You might say that the company and the country found more than they could have hoped for. The Tamar and Leviathan fields are estimated to have as much as 30 trillion cubic feet of natural gas, which is enough gas to supply Israel for decades even if it were to convert all of its energy consumption from coal and oil to natural gas -- with enough left over to export. Noble Energy estimates that this gas field and the planned export projects could net the country more than $130 billion in energy savings and government revenue from gas royalties. 

Source: Noble Energy Investor Presentation

Of course, Israel isn't the only one making out from this deal, either. The nation's proven reserves account for more than 30% of Noble's proved reserves, and will likely be one of the company's premier energy plays for decades to come. On top of that, the U.S. Geological Survey estimates there are more than 600 million barrels of recoverable oil in the Leviathan field, which could boost the company's reserves by another 17%. 

Game of Therms
Thirty trillion cubic feet of natural gas and 600 million barrels of oil is not a monumental amount in terms of the global energy landscape. But the combination of the size of the find, its proximity to a major demand center (Europe), and the fact that it's found in Israel could lead to several issues that might leave some major oil and gas powers not too happy. 

Israel could disrupt the energy markets via liquefied natural gas terminals or a combination of pipeline and electricity cables. Noble has brought on Australian partner Woodside Petroleum to develop an LNG terminal for the Leviathan gas field and potentially a second site for an adjacent gas field in Cyprus. The Leviathan LNG terminal is projected to export about 0.85 billion cubic feet per day. Again, not much, but enough to displace 15% of the LNG market in Western Europe.

Source: Noble Energy Presentation

More importantly, though, Noble estimates that Israeli and Cypriot LNG terminals could together undercut both American and Australian LNG export prices, which could drive down natural gas costs for Europe. This could reduce the profitability of major LNG players like Qatar, where ExxonMobil has a 25%-30% working interest in two of that nation's largest LNG terminals. 

An even more significant impact would revolve around the idea of supplying natural gas to Europe via pipeline. It may limit the market for Noble's natural gas, but it would probably generate higher profits per thousand cubic feet of gas because of the cost savings from skirting the liquefaction process. Also, since 40% of Europe's natural gas comes from Statoil (NYSE: STO  ) and Gazprom through very lucrative long-term pipeline contracts, Noble could carve out a nice position by displacing either the more expensive pipeline gas from one of these two players or expensive LNG imports. 

Not being an expert in geopolitics, I'm not going to try to venture a guess as to how the political landscape will change in the Middle East. It is pretty fascinating, though, that Israel will go from an extremely energy-import dependent nation to a big-time exporter almost overnight. The country has plans to build pipelines to Jordan, the West Bank, and Turkey, which could improve both economic and political ties to these energy-starved regions. Then again, it could also go in the exact opposite direction and could be a prime target for groups or nations who may scuffle with Israel.  

What a Fool believes
Noble Energy may have found a very large oil and gas field that could boost its bottom line for decades, but it found that asset in a place that has been the epicenter for religious and ethnic conflict for millennia. Even more, it may find that other companies are reluctant to join the project. Oil services giants Schlumberger (NYSE: SLB  ) and Halliburton (NYSE: HAL  ) have major contracts across the Middle East, and they are not likely willing to potentially lose those contracts in order to work with Noble in Israel.

Noble Energy investors and geopolitical watchers should be captivated by this story, because the next couple of years could be a wild ride.   


Read/Post Comments (10) | Recommend This Article (27)

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  • Report this Comment On November 03, 2013, at 12:00 PM, Fog643 wrote:

    It would appear that the biggest beneficiary of this find could be the European countries that currently are dependent on Russia for their NG supplies. They've been blackmailed by Russia before, but it may happen less often if new sources are available. JMHO.

  • Report this Comment On November 03, 2013, at 12:25 PM, midnitejax wrote:

    Does this mean that we in the US can expect Israel to support itself, rather than relying on my hard earned dollars?

  • Report this Comment On November 03, 2013, at 12:26 PM, unclefester wrote:

    Israel huh? And now we see why Al Gore has made all of his recent comments to get out of the oil stockmarket and support alternative energy sources like natural gas.

  • Report this Comment On November 03, 2013, at 1:09 PM, clinte wrote:

    unclefester..Gore has the inside info i'm sure bet one day they get him for insider trading

  • Report this Comment On November 03, 2013, at 3:01 PM, buzzsaw wrote:

    Now the Republicans have a reason to invade Israel.....

  • Report this Comment On November 03, 2013, at 5:46 PM, FreddieMi wrote:

    Let's put this in prospective. Last year the United States burned through 27 trillion cubic feet of natural gas so this "find" is about equal to one year's worth of natural gas usage...just in the United States.

    Two, LNG (liquified natural gas) is sold by the billion cubic foot lot at a minimum. To do this you need billions of dollars worth of equipment to transport, liquify and ship the gas--billions of dollars worth of equipment Israel doesn't have.

    Three, Russian gas is shipped via pipeline to its biggest consumers (Germany for one). Pipeline gas is much cheaper to transport than LNG via tanker. Russia can easily under sell Israeli gas to crowd them out.

  • Report this Comment On November 03, 2013, at 6:21 PM, shineridge wrote:

    Maybe we can stop forking over the I believe billions we give Isreal every stinking year !!!! ALL foreign Aid is 100% UNCONSTITUTIONAL. Besides, America is BROKE. We can't afford to throw money around the world. I believe our CRIMINAL politicians in Wash give money, EVERY damned year to Egypt, Pakistan, Afganistan, Isreal, and God knows where else. This CRAP has got to stop !!!!!!!

  • Report this Comment On November 03, 2013, at 6:44 PM, luckyagain wrote:

    "One thing that makes the energy sector so intriguing is the constant overlap between markets and politics. In many ways, energy security is synonymous with national security, and the supply and demand needs of the oil market can make the most unlikely bedfellows."

    Read this comment "... energy security is synonymous with national security". This really applies to all nations that have to import energy. This is the major reason that the US should try to minimize energy imports even from such stable countries as Canada and Mexico. The trillions of dollars spent on imported energy is a severe drain upon the US economy. Now increased natural gas production in the US helps but it is a long way from replacing all of that imported energy. Solar and wind energy maybe expensive but it is dirt cheap compared to all of the money that the US spends on defending foreign oil from the Middle East, especially since most of the countries in the Middle East consider the US to be their enemy.

    Remember "energy security is synonymous with national security". It is true today and will be true forever.

  • Report this Comment On November 04, 2013, at 9:25 AM, Jacob9009 wrote:

    One more thing i would want to add here, energy security is synonymous with national security but it also depends on the new discoveries, and the companies on how they will come up with new products, like Exxon is increasing its exposure in liquid production to capitalize on high crude oil prices and upstream volumes also increased 1.5% YoY. http://goo.gl/q7SsUx

  • Report this Comment On November 04, 2013, at 8:09 PM, GREENMM31 wrote:

    Just waiting to see how long before Hamas claims this is their find.

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