I have worked in the Oil and Gas Exploration and Production business for almost 50 years. This has included running large gas processing operations (both offshore and onshore) on behalf of Shell Oil corporationInternational,, and designing onshore and offshore gas-field developments on behalf of Shell, Mossgas, andBGSasol, and as an independent industry consultant.

I visited Israel between June 20 and July 4, 2010 at the invitation of a group of CarmelCoast residents who requested my opinion on the Tamar gas field development plan. I have inspected the proposed processing plant sites at Dor (South and North), Ein Ayala, CeasariaCaesarea, and Hadera. I have also reviewed the following documents (some in translation from the original Hebrew):

Development Alternatives for the Offshore Tamar and

Dalit Gas Fields, PDC report, 17/02/2010

PDC letter, 01/03/2010

  1. Israel Natural Gas Development plans presentation, February 2010.
  2. Development Alternatives for the Offshore Tamar and
  3. Dalit Gas Fields, PDC report, 17/02/2010
  4. PDC letter, 01/03/2010
  5. מצגת לוועדת העורכים תמ"א 37 ח' סוגיית הקמת האסדה לטיפול בגז23/06/2010Presentation to the TAMA 37 Executive Committee on offshore processing, 2306/2010
  6. Financial assessment of Tamar & Dalit land bases alternatives for gas connection to land infrastructure, TAMA 37, May, 2010

What else?

Based on the above, my main observations are as follows:

  1. Offshore gas processing, on a shelf-platform, appears to be the most appropriate choice for the Tamar development. Offshore (shelf platform) processing is veryan industry standard, in the industry, is extremely reliable, requires very little onshore infrastructure (< 10 Dunams) and can typically be implemented within 3 – 4 years. (see later regarding construction and barge availabilities).
  2. The planning authorities (Shiry to verify term)regulator should conduct a thorough independent evaluation of the offshore option and not rely on studies provided by the operator. There is an inherent conflict of interest in asking the operator to evaluate offshore options. Operatorshave very strong financial incentives for opposing offshore. Offshore processing has significantlyhigher operating expense (OPEX) over time, and presents far more logistical "headaches" for the operator. Regulators should therefore be cautious about relying on offshore studies conducted by the operator.
  3. Critical estimates presented by the IGA and Noble Energy about the offshore processing option do not fit with my industry experience. In particular, assumptions regarding the development timetable, reliability, and the amount of onshore infrastructure required appear questionable considering that this project is of such a critical nature, in which fast tracking constructions options should not be ruled out. I recommend thatthese assumptions should be examined very carefully.
  4. The IGA presentation implies that there is no backup plan in place for the Tamar gas supply. If this is true,it is a critical planning flaw regardless of whether processing is performed onshore or offshore. The Tamar supply could be interrupted by a failure on an onshore plant, or an offshore plant, or in the subsea extraction and pipeline system. Becoming reliant on Tamar without a backup supply plan would represent a completely unacceptable level of risk for Israel.
  5. Major gas infrastructure decisions should be based on proper risk, safety, and reliability analyses, rather than on generalized assumptions. The level of documentation that I have been shown regarding the Carmel Coast options would generallynot be considered adequate for significantdecisions in the gas industry. Specifically, A Quantitative Risk Analysis (QRA) is required, prior to site selection.
  6. The first Tamar processing plant should be part of a comprehensive gas development "master plan" for Tamar and for future gas discoveries. Such a plan should proactively address the full infrastructure that will be required over the foreseeable future, as well as appropriate risk management at the national level.
  7. Israel should identify options to reduce time pressure, and to provide sufficient time for proper analysis, planning, and decision-making. IGA and Noble argue that the onshore planning and approval process should be arbitrarily shortened in order to avoid critical shortfalls in the 2013 – 2015 gas supply. I believe that being rushed to major infrastructure decisions is unwise and likely unnecessary. There are often a number of alternative options to solving supply crises, and these should be methodically identified and independently evaluated. For example, the option of interim processing of Tamar Gas at Mary B should be thoroughly examined.

VII.

Below is a more detailed discussion of each of these observations. I will be happy to elaborate and discuss these observations further upon request.

I. Offshore gas processing appears to be the most appropriate choice for the Tamar development.

All operators favor onshore facilities over offshore. Onshore facilities are much lower cost to operate than offshore and they require simpler on-going logistics. As an operator, I myselfgenerally favor onshore rather than offshore facilities.

However, having seen the proposed locations and the unusual land constraints of Israel, I believe that offshore processing (specifically, full processing on a shelf platform) is the most suitable approach for Tamar.

This opinion is based on my experience developing and running gas and oil operations in many countries, and on having visited the proposed CarmelCoast sites. I believe that it would be an unfortunate and unnecessary mistake for Israel to turn the CarmelCoastinto a hydrocarbons processing industrial zone. My main reasons for this opinion are as follows:

1) Serious Disadvantages of Onshore Processing at the CarmelCoast:

  • By world standards, theCarmelCoastarea is highly populated. The proposed sites are all within close proximity of significant populations, highways, passenger train lines, and important infrastructure. Each site will inevitably cause pollution, safety, and disturbance problems.
  • I understand that theCarmelCoastis an important recreational area for Israel and a national heritage site. Indeed, several of the sites are in agricultural or forest areas. Hydrocarbon processing plants would fundamentally change the character and recreational utility of the region.
  • In general, the first plant in a gas development is followed by others as fields are developed and new discoveries made. One should assume that any onshore site that is selected will become a major hydrocarbon/petrochemical processing industrial zone over time. This will result in undesirable ribbon development throughout the camel coastal area.
  • The residents of the area appear to strongly oppose establishment of a hydrocarbon processing industry on the Carmel Coast. In the case of the Corrib gas processing plant (referred to in the PDC report) all progress has halted due to residence resistance and refusal to permit pipeline construction.
  • The Tamar gas is at extremely high pressure. Reducing the pressure to levels appropriate to onshore facilities will be complex. is not consistent with PDC's recommendation to reduce the pressure on a shelf platform.
  • There is a straightforward and very standard alternative available: offshore processing on a shelf platform.

2) Appropriateness of offshore processing for Israel:

Shelf platform processing plants have been widely used around the world for many years,and are completely standard in the industry. They are the norm in exactly the type ofland-constraint situations seen on the CarmelCoast.

According to the PDC information, the Tamar gas is of high quality and therefore the processing requirements are undemanding and would be straightforward to implement on a shelf-platform. Based on my experience,

  • Full processing on a well designed shelf platform would generally not require any significant onshore facility. The onshore component would typicallybe a2 - 3 acre(~10 Dunam) facility that would not cause any meaningful onshore disturbance.
  • A shelf platform gas processing plant of the type required for Tamar can be developed relatively quickly (my initial inquiries suggestapproximately 3 years excluding regulatory approvals)
  • A shelf platform plantprovides extremely high operating reliability if it is properly designed and managed. The industry generally expects both onshore and offshore processing plants to operate at virtually equivalent levels of reliability.

These reliability, timetable and onshore requirement assumptions are discussed in more detail in Section III. below.

II.The regulator should conduct a thorough independent evaluation of the offshore option and not rely on studies provided by the operator.

In general, the operators can be expected to vigorously oppose offshore options. The reason for this is simple: onshore plants have far higher profitability than their offshore equivalents.

Materials provided by IGA and PDC correctly state that onshore and offshore processing plants have similar development costs (CAPEX). However, they do not mention that offshore plants have far higher operating costs (OPEX).

OPEX for an offshore plant is higher because supplies, workers, and contractors have to travel by helicopter or boat instead of by road. Platform storage is limited meaning that logistics becomes much more complicated for the operator. Equipment is more densely situated meaning that maintenance routines are more costly. And specialized heavy equipment such as barge-cranes must be kept available instead of being able to contract standard onshore equipment when needed.

This very substantial difference in OPEX means that offshore plants are significantly less profitable on an ongoing basis than their onshore equivalents. As a result, the operator has extremely strong financial incentive to avoid moving offshore.

I therefore believe that there is an inherent conflict of interest in asking the operator to evaluate offshore feasibility. I would always advise the regulator to conduct an independent and detailed study of the offshore option in a case such as this, and not to rely on data provided by the operator.

III.Critical estimates presented by the IGA and Noble Energy about the offshore processing option do not fit with my industry experience.

The IGA and Noble Energy materials present three critical assumptions that I believe most industry personnel would find surprising: These three assumptions appear to be critical to the IGA position, and therefore I recommend that each should be carefully checked:

  1. Assumption #1, long offshore development timetable: Noble and IGA present an estimated 60+ month timetable for development of an offshore facility. This estimate is composed of 17 – 20 months for regulatory approval plus 40 – 48 months for design and construction.

Based on my experience with similar facilities, and on my inquiries about current availabilities, 40 – 48 month development timetable is significantly longer than required. I would assume that the type of facility required for Tamar could be developedwell within 36 months (excluding regulatory approvals) .

Regarding a 17 – 20 month regulatory process, I would comment that it is surprising to see that this is presented as sequential rather than parallel. Inthis industry design and engineering work for an offshore platform usually begins long before final location approval (as Noble has in fact done on the onshore plant). The specific location of the platform does not influence the design or build, and therefore development can begin as soon as the high-level go ahead has been given.

I would also note that timetables of offshore processing plants are very variable. This is because availability of many of the critical inputs change continuously (yard capacity, steel availability, heavy lifting crane and barge availability, processing equipment availability, etc.) .

What this means is that when a project has a particularly critical timetable, the operator can move it ahead of competing projects by allocating a larger budget. This allows the use of major design houses and constructors to secure a full package, and allows the project to “jump the queue” in securing critical elements and services.

Therefore, in order to determine the timeframe of a Tamar shelf-platform at this specific point in time, I would recommend contacting relevant suppliers and conducting a short independent study to determine the minimum timetable with different budget scenarios.

As an example, I was involved in the development of the PonsettiaPoinsettia gas processing platform in Trinidad (pictured below). This platform took 3 years FEED to EPICin a very tight development market. (Note, this platform is smaller than would be required for Tamar but size does not significantly affect the development timetable).

  1. Assumption #2, low offshore reliability:Noble and IGA report that offshore processing plants have serious reliability issues. They do not specify which type of plant they are referring to, but this assumption is certainly incorrect for shelf platform processing plants. Shelf platform and onshore plants have similar reliability as long as they are well designed and operated. There are specific unduplicated systems that can reduce reliability in offshore plants (for example FSO). But these systems should be designed out (for example, a condensate pipeline direct to a refinery) or extra redundancies built in.

IGA and Noble documents cite a statistic of 18 down days per year for an offshore platform. They should be asked to provide a source for this statistic as it is extremely surprising. 18 down days per year would not be accepted in any operation that I am familiar with. I have been unable to ascertain the reliability performance of Mary-B but I would be surprised if unscheduled downtimes where as high as 18 days per year, if any.

In my personal experience for example, I managed the Shell Sarawak, Central Luconia shelf platform processing plant (pictured below) for 5 years without a single unplanned down dayduring that period amongst 3 separate facilities of which only one is pictured below..

By contrast, I am familiar with onshore plants that have experienced far worse reliability records.

  1. Assumption #3, that an offshore plant still requires a large onshore facility: IGA/Noble state that even if an offshore plant is built, it will still require a large (80 Dunam) onshore facility. This should not be presented as a fact, it is entirely dependeant on design decisions amd is contrary the PDC design chart that clearly shows that full processing offshore requires only a tie-in to the INGL pipeline..

If full processing is performed on the platform (as I recommend), then only a very small facility (approximately 10 Dunam) would be required onshore. This facility would be for metering, distribution into the ING system, and pig capture.______.

Issues such as condensate storage need to be addressed during the design phase. For example, condensate can be stored at the platform in FSO's, or piped directly to a refinery. Neither of these common approaches require any shore space.

I would note also that in the IGA/Noble discussion of why 80 Dunam is required, they include space that does not need to be at the onshore facility, for example, warehouse space. A gas processing operation requires large warehouses. But there is no reason to build these warehouses at the onshore terminus if there are land use or environmental considerations. As with any other industrial operation, the warehouses wouldbe located in any convenient existing industrial zone.

(if we are able to find a google earth of an appropriate tie-in for the presentation, we can also insert it here).

IV.IGA documents imply that there is no backup supply plan for the Tamar gas supply.

The translated IGA presentation that was shown to me states that 50% of Israel's electrical supply will be based on Tamar gas. It further states that any disruption of Tamar gas would cause "catastrophic harm" to the electricity supply. This implies that there is no backup supply plan for that 50%.

According to the Noble and PDC materials, the current plan for Tamar development is a single subsea system feeding a single processing plant. This means that Tamar is acritical single point-of-failure that threatens 50% of Israel’s electricity supply. In other words, a failure anywhere in the Tamar subsea extraction or processing chain will have catastrophic consequences for Israel.

This should be ofextreme concern. Gas extraction and production systems are complex. Regardless of whether the Tamar processing plant is onshore or offshore, it cannot guarantee 100% reliability. Similarly, the Tamar wells and subsea systemscannot guarantee 100% reliability and subsequent intervention in water depth of 1700 meters is difficult. Therefore, according to the IGA presentation, a catastrophic failure of Israel’s electricity supply at some point is very possible.

In my experience, a major energy plan always has a backup supply plan for its critical elements. It seems to me absolutely unreasonable to allow a single-point-of-failure to threaten 50% of Israel’s electrical supply. This has nothing to do with the question of onshore versus offshore processing. Regardless of where the processing takes place, there is always a risk of failure and there needs to be a backup supply plan.

In fact, as shown in the IGA presentation other advanced countries never allow such critical dependencies: IGA shows that the UK, Australia, and US all have multiple redundant energy sources and that no single point of failure can significantly affect their energy economies.

Based on the information that I have seen, I strongly advise that a backup supply plan be implemented to cover the shortfall in the event of a failure in the Tamar system. This could be based on a parallelconnected subsea and processing system in Tamar, or onother sources. But in my opinion this issue must be urgently addressed.

V.Important decisions in the gas industry should be based on proper risk and reliability analyses.

In general, important decisions in the gas industry arebest based on proper risk and reliability analyses, rather than on general statements and undocumented assumptions.

Generally, I would advise that the following standard analyses must be prepared for each of the onshore and offshore options before any meaningful decisions can be made:

  1. Quantitativefied Risk Analysis (QRA): In a QRA, specialized domain experts from the design team sit down together with independent experts as well as observers from the relevant regulatory bodies and the full detailed system architecture is reviewed on a component by component basis. All failure mechanisms are assigned a probability and a number of scenarios are quantitatively analyzed.

I have not been showned such documentation for the currently proposed onshore solutions, or the offshore option. Until such a document is examined, the risks and safety distances specified cannot be relied upon. The QRA must also include the pressure reduction station at the beach.