War imposes six-month hiatus on gas production boost as US energy giant puts off ops to get expansion show underway

As the ongoing Israel-Gaza war in the Middle East continues to rage unabated while spreading to encircle other territories in the region, Chevron Mediterranean, a subsidiary of the U.S.-headquartered Chevron, has postponed its planned work on a giant natural gas field expansion project off the coast of Israel.

The decision comes two months after the U.S. oil major and its Leviathan partners, NewMed Energy and Ratio Energies, approved a $429 million investment to fire the starting gun on the front-end engineering design (FEED) phase for the proposed gas export capacity boost from the Leviathan field in the Mediterranean up to 21 billion cubic meters of gas (bcm) per year. The operator was even contemplating the addition of a fourth subsea transmission pipeline to the project’s underwater infrastructure.

Given Israel’s ‘Swords of Iron’ war on Hamas and its possible repercussions for the Leviathan partnership following the escalation of the conflict on various fronts, Chevron has decided to suspend the laying of a third subsea transmission pipeline from the Leviathan field to the platform, whose purpose is to allow expansion of the maximum gas supply capacity from the Leviathan project to Israel Natural Gas Lines (INGL) transmission system from approximately 1.2 bcf per day to around 1.4 bcf per day.

The company made the decision to postpone the work on laying the subsea pipeline as part of the third gathering pipeline project on October 6 due to the escalation of the security situation. The expansion activities have been suspended until April 2025 or thereabouts, depending on the performing contractor’s timetables and work schedule, alongside the regional security situation.

As a result, a delay of at least six months is expected in the completion of the gas expansion project, which together with the delay in the performance of the work on the combined section project, does not have a material aggregate impact on the total value of the partnership’s discounted cash flow from the Leviathan project, although it is anticipated to have a material negative aggregate impact on the projected cash flow in 2025.

“Further to the latest developments in the security situation and depending on, inter alia, operational and technical considerations, the operator, from time to time, halts production from the Leviathan reservoir for certain periods of time, in accordance with the platform’s operating instructions and safety procedures. As of the date of this report, the aggregate harm from the said production halts has not been material relative to the annual production volume,” explained Chevron’s partner, NewMed.

Since Phase B is envisioned to entail a liquefied natural gas (LNG) component to expand Leviathan’s customer base to Europe and the Far East, talks were underway in August 2024 with two existing liquefaction facilities in Egypt, together with exploring options for liquifying natural gas on a floating unit anchored in the Israeli exclusive economic zone (EEZ), after the Leviathan partners approved the budget for expanding the existing infrastructure to include a floating LNG (FLNG) facility, expected to produce 4.6 million tons of LNG per year. 

The expansion and the future FLNG facility are perceived to be necessary for the potential LNG deliveries from the Leviathan reservoir to Germany under the memorandum of understanding (MoU), which NewMed and Uniper inked. Located around 130 kilometers off the shores of Haifa, Leviathan is said to be not only the largest natural gas reservoir in the Mediterranean but also the largest energy project in Israel’s history, with 22.9 trillion cubic feet (tcf) of recoverable gas believed to be at its disposal.

The deep-sea field, comprising four subsea wells producing via a subsea manifold and two 120 km long pipelines, which lead to an offshore platform for gas processing, has been in production mode since December 2019. The gas is piped from the platform to shore into the Israeli national grid and distributed to Israel, Egypt, and Jordan.

The estimated start-up of natural gas production from the next stage of the Leviathan project was forecast to be between mid-2028 and mid-2029, however, it is uncertain whether the delay will impact this timeline.