Leviathan gas partners, Israeli government seek to break impasse

The shareholders in the 22 trillion cubic feet (tcf) Leviathan gas field and an Israeli government group are in talks this week to find a solution to competition concerns that have blocked the project.

ICIS understands that a number of options are being discussed including a reduction of Israel’s Delek Group and US Noble Energy’s stake in Israeli offshore assets.

The Israeli Antitrust Authority (IAA) in December raised doubts over the legality of the ownership of Leviathan. The development partners are Noble Energy, which is also the operator, with a 39.66% stake, along with Delek (22.67%), Delek subsidiary Avner Oil (22.67%) and Israeli exploration company Ratio (15%).

The key concern for the Israeli authorities is that Noble and Delek control all of Israel’s offshore gas reservoirs.

Meetings between a group of government officials, including the IAA and the Leviathan partners were due to be held between 3-5 February, covering all aspects of the Israeli natural gas market including export infrastructure.

ICIS understands that one possibility would be for Delek and Noble to sell their stakes in the 10tcf Tamar field, which is already producing gas. But for Noble in particular, this could be a difficult condition to accept, while finding a candidate to step in and take over its share and operator role could be challenging.

Another possibility could be for the partners to each sell their share of production independently in order to help create competition on the domestic market.

“I think the idea is that Noble will remain operator of Leviathan and Tamar. There’s no other option at the moment in my opinion,” said one analyst.

But he added: “All the options are still on the table and not conclusive.”

Noble, Delek and the IAA did not give details of any proposals being discussed at the latest meetings when contacted by ICIS. The Israeli energy ministry had not responded to ICIS’ enquiries by the time of publication.

A Noble spokeswoman told ICIS: “Final resolution of the antitrust issue, as well as a number of other regulatory matters that – in aggregate – have created an unsustainable investment environment, is required before we can proceed with substantial investments in Israel’s energy sector, including the Leviathan development and expansion of Tamar.”

Small fields

According to the IAA, a future agreement between the stakeholders could also include an earlier proposal regarding divestment of smaller Israeli offshore developments.

In March 2014, the IAA had proposed a consent decree – a legal mechanism to solve the competition problem it identified – that included the divestment of the 1.8tcf Karish and 1.2tcf Tanin fields by Noble.

But following a public consultation, the IAA decided not to present the consent decree to the antitrust tribunal, putting Leviathan’s status in doubt again.

The Noble spokeswoman said that the company had agreed to the terms in the decree and taken appropriate steps.

“Based on this agreement and in accordance with Israeli laws and assurances of the Israeli government, Noble Energy and our partners moved forward with investment of more than $1bn to advance Leviathan development,” the spokeswoman said.

“Simultaneously, we have worked in good faith to fulfil the terms of the consent decree by actively marketing the Karish and Tanin assets for sale,” she added.

Israeli exports

According to Noble’s last annual investor presentation, over 19tcf would be available to export from Israel after satisfying domestic requirements.

There are a number of potential export routes but discussions on these have been hindered by Leviathan’s unclear future.

One export project would see gas delivered to portfolio supplier BG at its Egyptian Idku plant, through a new undersea pipeline. Gas could also be sold to Jordan’s National Electric Power Company (Nepco) by building a land-based pipeline in northern Israel. Letters of intent were signed between Noble and both companies in 2014.

A third option would be a pipeline towards Cyprus. Delek last summer bid to supply Cyprus’ state-owned gas company, DEFA, with gas from Leviathan.

Delek said on 3 February that at DEFA’s request, the validity of the proposal would be postponed from 31 January to 30 April 2015.

“Accordingly, the commercial examination process and the negotiation between DEFA and the bidders are expected to continue in the near future,” Delek said. Emma Slawinski