Israel’s Leviathan partners target $30bn supply deal with BG

The partners in Israel’s biggest offshore natural gas field have reached a preliminary agreement on a $30bn deal to supply gas to Britain’s BG in Egypt via a new undersea pipeline, in the biggest cross-border deal yet of its kind between the nascent Israeli industry and a neighbouring country.

The deal will see Israeli gas pumped directly from the Leviathan field off Haifa, northern Israel, to BG’s liquefied natural gas plant in Idku, Egypt, which has been affected recently by acute gas shortages on the Egyptian market.

The investors in Leviathan said on Sunday in a filing to the Tel Aviv Stock Exchange and Israel Securities Authority that they had signed a non-binding letter of intent with BG to supply it with about 7bn cubic meters of gas a year over 15 years.

BG said the letter marked “a first step” towards supplying its stalled Egyptian plant with gas, but also said it was “very early days”.

“We are looking at a number of options for increasing the supply of gas to the Egyptian LNG facility, and this is one of several currently under consideration,” the company said.

Israel’s Delek Drilling and Avner Oil Exploration own 45 per cent of Leviathan, Noble Energy of the US owns 40 per cent and another Israeli company, Ratio Oil Exploration, has a 15 per cent stake.

A person with knowledge of the deal said that the proposed contract’s value was $30bn. This amount covers only gas sold and not the pipeline, which BG is expected to build.

The proposed deal, if struck, would provide an anchor for the development of Leviathan, one of the industry’s largest deepwater finds anywhere over the past decade, which holds an estimated 19tn cubic feet of discovered gas

The contract reflects a reversal of fortune for Egypt’s natural gas industry, which until recently exported to Israel and Jordan, but stopped because of domestic shortages and attacks by militants on its pipeline running through the troubled Sinai peninsula.

BG declared force majeure in Egypt in January because it did not have enough gas to keep its plant in Idku running.

In May, Noble and Delek signed a letter of intent on a smaller deal to export up to 4.5bcm per year over 15 years from Israel’s smaller Tamar field, which is already operating, to a second Egyptian refinery in Damietta operated by Unión Fenosa Gas, a joint venture between Spain’s Gas Natural and Italy’s Eni.

The proposed deal, if struck, would provide an anchor for the development of Leviathan, one of the industry’s largest deepwater finds anywhere over the past decade, which holds an estimated 19tn cubic feet of discovered gas.

Noble and Delek want to begin developing the field by the end of this year and export gas from late 2017.

The Leviathan investors have pushed the project forward against the backdrop of tense discussions with Israeli regulators, who have set caps on how much they can export, probed antitrust issues surrounding their control of the industry, and set a surtax on windfall profits.

The geopolitics of Israel exporting gas to neighbouring countries are also delicate because of friction over the country’s unresolved conflict with the Palestinians.

However, the Leviathan partners have signed a small supply contract to sell gas to potash and bromine companies in Jordan, and are negotiating larger contracts to pipe gas from Leviathan to Jordan and Turkey.

The Financial Times

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