When Dan Meridor, the Deputy Prime Minister of Israel expressed cautious optimism over Israeli-Egyptian relationships, one cannot help but feel skeptical about the way things are turning out in Egypt. The country elected Muslim Brotherhood candidate Mohamed Morsi as the President of Egypt and politicians there have asserted that peace treaties between Israel and Egypt will continue to hold good, and that business shall remain as usual. This statement must be ingested with a pinch of skepticism too, as Egypt had terminated a natural gas deal, which sent gas to Israel from Sinai Peninsula over a pipeline. Egypt had claimed that it was a business decision and had nothing to do with politics or internal matters.
When it comes to countries that have politicians who are swayed by fundamentalism, one cannot really take their words literally. As evidenced earlier, most fundamental politicians mix religion with business and bring in strange policies that not only hurt economic cooperation, but also open possibilities of military interventions. With that in mind, we must look at the change of power in Egypt with extreme skepticism and wariness. Ideally, Israel must stop depending on Egypt for its fuel needs and must become self dependent or try and get gas from secure neighbors who are friendlier towards Israel, for instance Cyprus.
The Mari-B well off Israel's Mediterranean coast has remained one of the most important sources of natural gas, but it is almost depleted now. When Noble Energy (NBL) and its partners announced that they began laying pipelines connecting the Noa and Pinnacles wells to Mari-B, we could assume that the future of Israel in terms of its fuel needs are not going to be as bad as we imagined. In fact, Noble mentioned that natural gas from the Noa field has begun to flow towards Israel and it will help Tel Aviv to prevent electricity and fuel shortages, especially after Egypt announced its decision to cut natural gas supplies. Israel has been importing low-quality diesel and fuel oil from a host of countries and its electricity rates have increased drastically.
With the nuclear threat from Iran looming, Israel certainly does not need another worry hanging heavy over its shoulders. Thanks to Noble Energy, Israel will be able to put its natural gas worries to rest at least for a while till a new source can be found. The Tamar field, with its estimated 9.7 trillion cubic meters of gas, will be operational only by 2013, and Noa's supply is extremely crucial to Israel. Noble owns 47.059% of Noa, while its partners Delek Drilling and Avner Oil Exploration hold the rest.
Noble has a very important role to play in Israel's fuel needs and the company should make every possible attempt to make sure that Israel has enough gas and oil supplies to meet its fuel requirements. When Israel's fuel demands and requirements are met, the country will be able to focus on its more important issues like Iran, security and conflict resolution.
Noble is not only active in Mediterranean Sea, but also in West Africa, and elsewhere in the African continent. Noble started exploratory activities way back in the 1990s in Equatorial Guinea. With such established natural gas activities, Noble will surely be able to compete with its rivals successfully. Noble also has a few advantages over its competitors in terms of its monopoly over natural gas in the eastern Mediterranean. For instance, Occidental Petroleum (OXY) is focused more on liquids than on natural gas, which makes it difficult for Oxy to compete with Noble in Israeli market.
On the other hand, Anadarko (APC) did slightly better than Noble, as its first quarter 2012 gas sales was around 43%. However, Anadarko's monopoly is in Mozambique than in Israel, and Noble will be able to secure its position in Israel no matter what other companies are up to. Anadarko has recently been extremely active in Mozambique and has announced major projects in that Southern African country.
Exxon Mobil (XOM) is still wrangling with Iraqi central government in order to protect its contracts with the Kurdistan Regional Government and that is going to take some time. Moreover, the fact that Iraqis are getting too close for comfort with Iran is something that the bigwigs at Exxon Mobil need to be wary about.
Noble could be a very good investment option at the moment, especially as the oil and natural gas prices are falling at the moment. The price of oil and natural gas will eventually rise, helping investors to savor the fruits of Noble's fortune. Noble has projected an annual increase in cash flow of 22%, but positive cash flow will be noticed only by 2016, which is slightly worrying news for long-term investors. Thanks to Noble's available liquidity, decrease in cash flow in the next couple of years will be met successfully. Only Apache (APA) may have better finances, if we had to compare natural gas stocks. However, investors should bear in mind that Noble has a better and more competitive undervaluation than Apache.
If Israel should feel secure about its energy requirements, it must stop depending on hostile nations for its natural gas requirements. It is very important for Jerusalem to strike deals with companies like Noble who have exploratory activities in the vicinity. Israel not only faces adversities in Egypt, but also in Turkey. Turkey has long asserted that it will not let anyone meddle with the disputed territory of Cyprus, though the international community does not recognize its demands. Israel must walk a tight rope and make sure that it is not losing out on lucrative deals with gas companies like Noble, and it should avoid importing low quality fuel from Egypt and other hostile nations.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.