Israel, which declared war against Islamist militant group Hamas following an unprecedented attack by the group in Israeli territory, has instructed Chevron Corp. to shut in the Tamar natural gas platform offshore the northern coast.
Alternative fuels are to be used as necessary to ensure the economy can operate, Israeli officials said.
Israel had formally declared war on Hamas and was ramping up a major military operation in Gaza following the deadly attack on Saturday. More than 1,000 people had been killed and dozens were missing as of early Monday. At least nine Americans were killed in the attack, and other U.S. citizens were reportedly missing, the U.S. State Department confirmed.
“As reported by the Tamar working interest owners to the Israel Securities Authority, Chevron Mediterranean Ltd. was instructed by Israel’s Ministry of Energy to shut-in production at the Tamar Production Platform,” a Chevron spokesperson said. “We continue to supply our customers in Israel and in the region from the Leviathan Production Platform.”
According to Israel’s Ministry of Energy and Infrastructure, Tamar production in 2022 increased year/year by 18% to 10.25 billion cubic meters.
The San Ramon, CA-based major “is focused on the safe and reliable supply of natural gas for the benefit of the Israeli domestic market and our regional customers,” said the Chevron spokesperson. “Our top priority is the safety of our personnel, the communities in which we operate, the environment and our facilities.”
Discovered in January 2009 by Houston’s former Noble Energy Inc., Tamar is about 60 miles west of Haifa in Israel at a depth of 5,000 meters. Chevron, which bought Noble in 2020 and secured the substantial Eastern Mediterranean resources, developed Tamar within four years. It was fast tracked in part to expand resources for the regional market.
According to Chevron, Tamar’s six wells each produce 7.1-8.5 million cubic meters/day. Most of the gas processing “takes place on the Tamar platform.” The field supplies about 70% of Israel's energy consumption needs for electricity generation.
Replacing Tamar? Alternative Fuels
Israel was working on Monday to ensure the economy had adequate energy supplies with the loss of Tamar’s resources.
"In the wake of the situation, Israel's defense establishment ordered the temporary suspension of natural gas supplies from the Tamar field,” the Energy Ministry said. “The economy's energy needs will be supplied by alternative fuels. The power industry is preparing to use alternative fuels to power its stations."
Separately, Prime Minister Benjamin Netanyahu’s government authorized Energy Minister Israel Katz to issue a state of emergency for at least the next two weeks. Declaring a state of emergency would allow the government to allocate natural gas to consumers if supply shortages were to emerge.
Chevron holds a 25% stake in Tamar with partners Isramco (28.75%), Tamar Petroleum (16.75%) Mubadala Energy (11%), Tamar Investment 2 (11%), Dor Gas (4%), and Everest (3.5%). In August, Israeli officials agreed to allow additional gas resources from the Tamar field to be exported to Egypt.
The Leviathan natural gas reservoir offshore Israel, about 81 miles west of Haifa, remained in operation as of Monday. The massive field, discovered by Noble in 2010, is the largest energy project in Israeli history, according to Chevron. Estimated gas volumes in place are 33 Tcf, with recoverable reserves of 22 Tcf, Chevron noted.
Higher TTF Prices
Europe’s natural gas prompt prices at the Dutch Title Transfer Facility closed on Monday at $13.58/MMBtu from Friday’s $11.90. Meanwhile, Brent crude oil prices were up by around 4%, as were West Texas Intermediate crude oil futures, which at mid-afternoon Monday were trading at around $86.30/bbl.
“There's not a lot of natural gas that makes its way from the Eastern Mediterranean to Europe, but with little spare capacity in the global market and participants already on edge over other geopolitical risk and supply shocks elsewhere, the Israeli conflict introduces another element of uncertainty,” said NGI’s Jamison Cocklin, senior editor.
“While underlying fundamentals are bearish, with both Europe and Asia well stocked with gas, the threat of broader tensions in the Middle East is also likely to keep the energy markets on edge.”
Israel “is reliant on internal production for its needs,” noted NGI’s Patrick Rau, director of Strategy & Research. “I don't see any major disruption to the world gas trade because of this. Israel would be impacted, of course, but the rest of the world? Maybe not so much.”
Rau noted that Chevron produced 600 MMcf/d in Israel last year. He pointed to Chevron’s U.S. Securities and Exchange Commission (SEC) Form 10-K for 2022. The company is contractually committed to deliver 2.8 Tcf outside the United States from 2023 through 2025 to third parties from the Australia and Israeli operations.
With the war escalating quickly, energy analysts were uncertain about the direction of commodity prices. Analysts with Energi Danmark, Goldman Sachs Commodities Research, Jefferies Equity Research and Tudor, Pickering, Holt & Co. each weighed in.
“The conflict that has erupted in Israel and the Gaza Strip is extremely tragic, but in our view likely to be localized in nature,” the Jefferies analysts said. “Reduction of near-term Israel domestic gas demand is possible, but a fundamental long-term change is difficult to envisage.
“Field shut-ins offshore Israel also impact gas exports, which is a secondary political dynamic.” Threats of drone strikes on the Karish floating production storage and offloading facility “have been made in the past, but are a more tangible risk now, in our view.”
Energi Danmark’s team noted that the natural gas markets had risen early Monday in response to “the events in Israel” and “fears of what effect it could have on the whole geopolitical situation and potentially also the gas exports from the Arab world to Europe.”
Said the TPH team, “Unfortunately, geopolitics is likely going to dominate news flows this week following Hamas’ attack on Israeli citizens, the consequent declaration of war by Israel, and Israel’s promise of retribution on the Gaza Strip.
“Following these unfortunate attacks, Iran has publicly voiced support for Hamas, while President Biden has reaffirmed that the United States stands behind Israel. Consequently, we expect that any potential negotiations between the U.S. and Iran are now frozen, and that domestic political pressure may force the Biden administration to strengthen existing sanctions given Iran’s role in funding and supporting Hamas…”
The Goldman analysts acknowledged “the elevated uncertainty and incomplete information at this early stage.” However, “we note that there has been no impact to current global oil production,” and “we see as unlikely any immediate large effect on the near-term supply-demand balance and near-term oil inventories, which tend to be the main fundamental driver of oil prices.”
What About Iran?
Iran, which stated its support for the Hamas attack, is an OPEC member – and oil exporter. The country’s oil production has been rising this year, but output could slow if tighter sanctions were imposed – or if Israel were to retaliate.
The bigger picture, NGI’s Rau said, is “what, if anything Iran plans to do, especially with respect to the Strait of Hormuz. A few analysts are opining crude could reach $150/bbl if that gets choked off.
“That would also impact LNG tankers moving through that area, which could require more of a call on liquefied natural gas from Australia and the United States, everything else being equal.”
If that were to happen, “Chevron could recoup losses from Israel via higher netback prices for Australian LNG, especially since that tends to be tied to oil prices,” Rau said. “That’s assuming, of course, that labor and operational issues don't hamper volumes there.”
