U.S. natural gas futures dropped to $3.08/MMBtu on Tuesday, their lowest in over a week, after surging 20% in November. Gas prices have declined amid forecasts of milder weather in mid-December, following a brief cold spell that had driven earlier gains. Utilities have stopped drawing heavily from storage, despite colder-than-usual weather recently boosting consumption. Meanwhile, U.S. gas production clocked in at a robust 101.5 billion cubic feet per day in November, but below last year’s peak of 105.3 bcfd. In contrast, European natural gas futures climbed to €48.7 per megawatt-hour, close to their one-year high, as colder weather is forecast to spread across the continent, increasing heating demand.
Temperatures in western Europe are set to drop, adding pressure to fast-depleting gas reserves, with gas stores only 85% full compared to 95% a year ago. Further, there are growing concerns over supply risks, including the upcoming expiration of a key gas transit deal between Russia and Ukraine.
The Middle East conflict has so far not significantly impacted global oil and gas flows, reflecting the marginality of Eastern Mediterranean gas on world markets, even as more cracks appear in the ongoing ceasefire between Israel and Hezbollah. On Monday, Hezbollah fired into a disputed border zone held by Israel, with Lebanon’s parliament speaker claiming that Israel has committed 54 breaches of the ceasefire. However, Israel’s energy sector is bound to benefit from the ceasefire by encouraging foreign contractors to return to the country’s offshore and resume key gas expansion projects.
U.S. major Chevron Corp. (NYSE:CVX), operator of both Israel’s key gas fields, 23 tcf Leviathan and 14tcf Tamar, put expansion projects at both on hold due to the conflict. The expansion of both gas fields had originally been due for completion by mid-2025. The expansion will increase Israel’s gas exports to Egypt by a reported 6bn cubic feet per year. Back in February, Chevron approved a US$24 million investment to boost gas production at the Israeli?Tamar offshore gas field. Israel--one of the main gas exporters in the region--temporarily suspended some exports in the immediate aftermath of the war but managed to return to normal production quickly.
The biggest disruption to Israel's energy sector has been the suspension of the British Petroleum (NYSE:BP)–Abu Dhabi National Oil Company (BP-Adnoc) bid to acquire a 50% stake in Israeli gas producer?NewMed Energy (OTCPK:DKDRF) for US$2bn. NewMed Energy is the majority shareholder and main operator of the giant Leviathan Natural Gas Field with a 45.3% working interest, while Chevron Corp and Ratio Oil Corp. have a 39.7% and 15% stake, respectively.
The deal was first thrown into question after an independent panel appointed by NewMed recommended raising the asking price by 10%-12%, or as much as ~$250M, which might seem like a stretch considering back then the company had a market cap of $2.9B and $87 million in cash but $1.73B in debt. Meanwhile, reports emerged that executives at BP and Adnoc were anticipating further delays on the deal until the political situation improves. Experts are worried that a surge in civilian casualties could make it politically untenable for the companies to proceed, with the death toll in Gaza already approaching 50,000, mostly civilians.
NewMed and its two partners discovered the Leviathan Natural Gas Field in the Levant Basin Province in 2010. The gas field straddles the sea borders of Israel, Lebanon, Palestine, the Republic of Cyprus and the Turkish Republic of Northern Cyprus. With 22.9 trillion cubic feet of recoverable gas, Leviathan is the largest natural gas reservoir in the Mediterranean and one of the largest producing assets in the region.
Lebanon’s Gas Quest Could Go Bust
But the NewMed takeover is not the only energy project that has been disrupted by the Israel-Hamas war. Last year, French energy group TotalEnergies (NYSE:TTE) set the first drilling rig at its location in the Mediterranean Sea off Lebanon’s coast near Israel’s border with the country looking to commence operations in search for gas. The cash-strapped nation hoped that future gas sales could help the country pull out of its deep financial crisis that has seen the local currency lose more than 98% of its value.
"The arrival of the equipment marks an important step in the preparation of the drilling of the exploration well in Block 9, which will begin towards the end of August 2023," TotalEnergies said in a statement. TotalEnergies leads a consortium of energy companies working on the offshore project, which includes Italian oil and gas giant Eni S.p.A. (NYSE:E) as well as state-owned QatarEnergy.
The drilling operations came after a landmark U.S.-brokered agreement that saw Lebanon and Israel establish a maritime border for the first time ever. Previously, Lebanon’s Energy Minister Walid Fayad said they hoped to determine whether the exploratory block has recoverable gas reserves by the end of the current year.
Unfortunately, the ongoing war is very likely to make cooperation between the two countries almost impossible, with Lebanon being home to Israel’s arch-enemy, Hezbollah.
By Simon Watkins for Oilprice.com
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