Okay. While this discovery is huge on the scale of a tiny country like Israel, it is not huge on a global scale, and it alone would not be enough to replace Russian supplies. Still, it is big enough to make those who need the resource take notice.
As to Russia and its natural gas fueled influence over the EU - some historic background may be in order, this from 2007:
Three years later, some progress in eroding that power has been made.
And since I am quoting The Economist so extensively, here’s their take on Israel’s find back before Leviathan was confirmed:
So a game changer to Russia’s use of energy as “the tool of influence”? Maybe not by itself. But certainly another $4 billion dollars/yr worth of natural gas being thrown into the mix, combined with natural gas becoming more fungible across the EU, does have some import.
And it is also interesting to consider the circumstance Israel was in before the size of this find was verified. Israel was easing off of coal and to natural gas but was dependent on Egypt for its supplies. That circumstance was tenuous as Egypt was having a harder time meeting its own needs and politically selling to Israel was becoming more unpopular. Yet the alternatives, working with Hamas in exploiting a Gazan resource, importing large amounts of LNG, and piping Russian gas to Israel by way of Turkey, each had major implications and issues, issues that are now moot.
Russia’s gas influence is mainly in some countries of the former Soviet Union, Belorussia, which they have been subsidizing with a very low gas price. Russian have a history of good will and trying to be a dependable source for both gas and oil and with the new pipeline in the Baltic Sea it will be more so. In fact, Russia has as much, or more, need of the income from Western Europe as W-Europe has of gas from Russia. But new sources, from for instance Israel, is always good. Israel’s find is good for Israel, but it won’t really change anything beyond the local area. Israel’s enemies in the Middle East will be unable to squeeze Israel on energy deliverance (Kuwait suggested the Middle East should squeeze Denmark by cutting off oil during the Muhammed Cartoon crisis, but Denmark is a rather big net exporter of oil), Lebanon and perhaps Cypress will probably try to demand a cut. And it will take years before the gas comes online. I hope it won’t undermine the good work you are doing with electric cars.
No offense, but this post is just terrible. It is just an absolutely horrible estimate of the value of the field particularly for Israel.
First, your link is completely irrelevant. You absolutely do not want to use the price of natural gas for residential customers. That price is completely irrelevant when discussing what price a producer of gas will receive. Residential consumers of natural gas are an incredibly tiny fraction of the market. That also includes taxes in the price, transportation costs, and is many times specified what it needs to be by regulatory agencies that don’t like price fluctuations. Further, residential costumers pay more because the supply to them is uninterupted. Please read this link from your same source (EIA) that explains some of the differences in the price for residential consumers versus the actual sales price of natural gas.
[QUOTE=EIA]
Natural gas is consumed by residential, commercial, industrial and electric utility customers. Residential and small commercial customers use gas in relatively small quantities (primarily for space heating and cooking). They tend to pay the highest prices per unit of gas but generally enjoy uninterrupted service. Industrial and electric utility users generally use gas in larger volumes (for uses such as process heating, crop drying, and as fuel for powerplants). Although larger users usually pay lower prices per unit of gas, their purchase contracts tend to be shorter-term and interruptible, and many switch to other fuels if natural gas becomes scarce or too expensive.
…
On average, the cost of the gas itself (the commodity price) is less than half the total cost for low-volume users, such as residential and some commercial customers.
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This is a better link to see the U.S. price of natural gas, which as you can see is not $10-20 per mcf, it is $3-5 per mcf.
Second, why would you even want to value the field using the U.S. price of natural gas? This isn’t really like oil where it is a global commodity. It is much more difficult to transport natural gas therefore you get isolated markets. The U.S. is effectively an isolated market. We basically produce the same gas we consume. We also have a huge supply of it and tend to pay lower prices than most other parts of the world as a result. You would really want to use the LNG price as most likely Israel will be exporting much of this gas. This is a more difficult price to determine as much of the LNG that is currently sold is based on prices predetermined in long-term contracts entered into some years ago. Additionally, different areas use different benchmarks to base the LNG price off of. For example, some places the price of LNG floats based on the price of crude oil. Other places it floats based on the price of a local gas price (Henry Hub in the U.S.). Here is some good reading material on LNG pricing. That basic fact is that you can build in some premium for LNG over typical pipeline type gas, so it would be fair to project for the near-term future something like $8 / mcf as opposed to something like $5 / mcf U.S. produced gas.
Third, you are completely ignoring capital costs associated with the development of this field. Not only do they have to actually spend significant money building infrastructure to produce the gas, they will also have to spend significant money building an LNG liquefaction plant. Those are billions of dollars in cost you have ignored. This is a 125 square mile structure. They need to drill several more appraisal-type wells to even determine if the pay thickness is roughly uniform across the whole structure.
Fourth, you are ignoring the operating costs. Even once the wells are drilled and the infrastructure is in place and the LNG plant is built, it costs significant money to actually operate all of this. This will be a couple bucks per mcf at least.
Fifth, and maybe the most glaring, the country of Israel is not even the primary financial benefactor of this discovery. The field is owned by the following companies.
Those companies will reap the primary economic benefit. That doesn’t mean that Israel gets nothing. They have a royalty interest and they will receive tax revenue. The royalty interest is something like 12.5% (12.5% of revenues without expenses deducted) and the taxes will be something like 25% (of net profit after all expenses).
Finally, it is probably worth noting that the best case is that this field will be producing by 2016.
In other words, you may want to knock off a zero from your $160 - $320 billion estimates.
All of you are so off base it is getting ridiculous. This won’t make a blip on Russia’s stranglehold over the European gas market. If that’s the topic you are interested in discussing then start with evaluating the status of the European shale projects. Europe won’t be as reliant on Russia (and LNG imports from other countries) mainly because they will be producing their own gas, hopefully. They are learning from the U.S. the technology to develop the shale gas reserves under their own ground.
Take Poland for an example. They currently import almost all of their gas from Russia. Read this article from the Wall Street Journal, “U.S. Giants Bet on Shale Gas in Poland.”
[QUOTE=WSJ]
Geological research shows that a similar U-turn is possible in Poland, which may have enough shale gas to satisfy all of its gas demand for decades — or more.
At present, Europe’s gas industry is still divided into the western part, which relies heavily on imports from Algeria and its own production, and the eastern part, including Poland, mostly dependant on Russia’s Gazprom. A discovery of large shale gas deposits in Poland could diminish Gazprom’s importance in Central and Eastern Europe.
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This is simply a poor job of reporting. The Wall Street Journal is counting on people to confuse estimated reserves with proved reserves. Either that or the reporters have no idea what they are talking about. The U.S. Geological Survey is estimating the technically recoverable reserves. In their own study, they state:
[QUOTE=USGS]
no attempt was made to estimate economically recoverable resources
[/QUOTE]
Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations. Proved reserves can be categorized as developed or undeveloped.
If deterministic methods are used, the term reasonable certainty is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate.
Establishment of current economic conditions should include relevant historical petroleum prices and associated costs and may involve an averaging period that is consistent with the purpose of the reserve estimate, appropriate contract obligations, corporate procedures, and government regulations involved in reporting these reserves.
In general, reserves are considered proved if the commercial producibility of the reservoir is supported by actual production or formation tests. In this context, the term proved refers to the actual quantities of petroleum reserves and not just the productivity of the well or reservoir. In certain cases, proved reserves may be assigned on the basis of well logs and/or core analysis that indicate the subject reservoir is hydrocarbon bearing and is analogous to reservoirs in the same area that are producing or have demonstrated the ability to produce on formation tests.
The area of the reservoir considered as proved includes (1) the area delineated by drilling and defined by fluid contacts, if any, and (2) the undrilled portions of the reservoir that can reasonably be judged as commercially productive on the basis of available geological and engineering data. In the absence of data on fluid contacts, the lowest known occurrence of hydrocarbons controls the proved limit unless otherwise indicated by definitive geological, engineering or performance data.
Reserves may be classified as proved if facilities to process and transport those reserves to market are operational at the time of the estimate or there is a reasonable expectation that such facilities will be installed. Reserves in undeveloped locations may be classified as proved undeveloped provided (1) the
locations are direct offsets to wells that have indicated commercial production in the objective formation, (2) it is reasonably certain such locations are within the known proved productive limits of the objective formation, (3) the locations conform to existing well spacing regulations where applicable, and (4) it is reasonably certain the locations will be developed. Reserves from other locations are categorized as proved undeveloped only where interpretations of geological and engineering data from wells indicate with reasonable certainty that the objective formation is laterally continuous and contains commercially recoverable petroleum at locations beyond direct offsets.
Reserves which are to be produced through the application of established improved recovery methods are included in the proved classification when (1) successful testing by a pilot project or favorable response of an installed program in the same or an analogous reservoir with similar rock and fluid properties provides support for the analysis on which the project was based, and, (2) it is reasonably certain that the project will proceed. Reserves to be recovered by improved recovery methods that have yet to be established through commercially successful applications are included in the proved classification only (1) after a favorable production response from the subject reservoir from either (a) a representative pilot or (b) an installed program where the response provides support for the analysis on which the project is based and (2) it is reasonably certain the project will proceed.
[/QUOTE]
In case you don’t think it makes much of a difference, the USGS estimates up to 300,000,000 TCF of gas reserves from methane hydrates. As far as I know, there are 0 proved reserves of methane hydrates.
I don’t believe the USGS has any updated estimates for all U.S. natural gas reserves. Needless to say, it would absolutely dwarf the proved reserves number. I know the EIA did an estimate recently and it was 2,587 TCF, which is more than 10 times the proved reserves.
If you haven’t already noticed, I give offense and don’t much take it. I read your reply with great interest. I am merely an energy-issues enthusiast, and no expert. The occasional Real Good Answer is a big part of why I come to the 'dope. Thanks.
The importance of this discovery can not be underestimated (assuming that it can be commercially produced) - energy security and independence is priority for all nations. Shale gas has changed the energy equation in the United States with the prospects of it being a exporter nation. For Europe, the hope is that the development of shale gas with reduce dependence on Russia sources of energy. www.shalegasforeurope.com