Industry Trend Analysis - Tanin & Karish Step Up Offshore Competition - NOV 2017
BMI View: Government efforts to improve competition in the Israeli offshore are close to bearing fruits as Energean steps closer to an FID on the Tanin and Karish fields. Sales contracts negotiations are already indicating this is supporting lower gas prices.
The field development plan (FDP) for the Tanin and Karish development has been approved by the Israeli petroleum commissioner, paving way for a final investment decision (FID) before the end of 2017. Energean submitted the FDP for the Tanin and Karish gas fields in June 2017. With positive momentum behind new gas sales contracts, we added the project to our gas production forecast, with the expectation of first gas in 2020. The development is significant, given it will be the first project sanction following the government's antitrust action to break up the dominance of Noble and Delek in the Israeli offshore.
|Tanin & Karish Ready For FID|
|Israel Natural Gas Production (bcm)|
|f = BMI forecast. Source: BMI|
The Karish main development, envisages three wells using a new FPSO unit. The development would also comprise a gas pipeline connecting the field to the Israeli gas transmission system. Total capex for the development is being targeted at USD1.3-1.5bn. The Tanin development would follow the Karish development, comprise six production wells and be connected to the same FPSO. Energean has already selected TechnipFMC to deliver the concept and Front End Engineering Design (FEED) for the development. The two fields could deliver some 88bcm of gas to the Israel market and 44mn barrels of light hydrocarbon liquids (to be exported) during the lease term (to 2044). We estimate this is sufficient to produce around 4.0bcm of gas at peak output.
Key to progressing the projects will be securing the supply deals. In May 2017, Energean signed two agreements for the supply of natural gas from the Karish and Tanin fields with Dalia Power Energies and its sister company - Or Power Energies. Combined the deals represent a total of up to 23bcm of gas over the lifetime of the contracts. As of September 2017, Energean is reportedly in discussion for gas supply deals with three companies in Israel:
OPC Energy: 0.6bcm of gas annually for 15 years (9bcm in total).
Israel Chemicals: would buy 13bcm over a 15 year period.
Oil Refineries: would buy 17bcm in total over a 15 year period.
The conclusion of the third, fourth and fifth supply agreements for gas sales would facilitate an FID, with around 62bcm of the 88bcm resources contracted for sale. While the contract price for each deal is unclear, it will likely be fixed at under USD6.0/mnBTU to compete with output from the Leviathan and Tamar fields. In February, Energean reportedly offered gas to Israeli Electric for around USD4.5/mnBTU.