Leviathan must choose Turkey, Egypt or expand production
The natural gas field's license terms limit exports to 6-8 BCM a year under the current development plan.
The government will restrict natural gas exports via pipeline
from the Leviathan gas field, according to the license conditions
published today. The license requires the partners in Leviathan to keep
capacity of 8-10 billion cubic meters (BCM) of gas a year for the
domestic market, which leaves it 6-8 BCM a year for exports to other
countries in the region. This is an amount of gas sufficient for one
anchor customer: either Egypt or Turkey, but not both.
In their response, the partners in Leviathan -
Noble Energy Inc. (NYSE:
NBL),
Delek Group Ltd. (TASE:
DLEKG), and Ratio Oil Exploration (1992) LP (TASE:
RATI.L)
- said that the set-aside exceeded Israel's expected natural gas demand
from Leviathan, at least during the gas field's first years of
operation. The choice is between the potential loss of billions
of dollars in revenue from gas sales to neighboring countries or the
need to invest heavily to expand Leviathan's production infrastructure,
which will greatly increase its development cost. The partners' current
development plan calls for an initial investment of $4.9 billion for a
floating production, storage and offloading (FPSO) ship, which can
deliver 16 BCM of gas a year to a pipeline.
The Tzemach Committee
on gas exports estimates Israel's gas needs from Leviathan at 2-7 BCM a
year during its first ten years of operation. The Ministry of National
Infrastructures insisted on keeping a surplus capacity, partly because
of the lesson from the Tamar gas field's development for which
insufficient capacity was approved, because the ministry did not
anticipate the loss of Egyptian gas.
The Ministry of National
Infrastructures believes that the reserve capacity is critical for
Israel's needs, and insists that this will not prevent development of
Leviathan, even if it reduces the partners' profits. The ministry agreed
to soften its demand that the Petroleum Commissioner have the right to
require the partners to keep gas for an emergency reserve, even if this
resulted in violating commitments to foreign customers.
The
Leviathan partners objected to both the capacity reserve and the
government's demands for future open access to Leviathan's
infrastructures to other companies' gas fields, and to a $100 million
bank guarantee.
Environmental organizations slammed the Ministry
of National Infrastructures' refusal to allow a public hearing on the
license. "It is improper that such an important agreement with
far-reaching effects and such great public interest is published in its
final version without giving the public an opportunity to comment on
it," said the
Israel Union for Environmental Defense.
In a separate development, the
Antitrust Authority
will today announce a hearing for the settlement with Noble Energy and
Delek Group on their alleged cartel at Leviathan. The settlement
requires the companies to sell the Tanin and Karish gas fields, and if
their aggregate amount of gas is less than 70 BCM, to sell gas reserves
from Leviathan to meet this threshold.
The settlement with the
Antitrust Authority, the license, and export taxes are the main issues
that have delayed the signing of the agreement to sell 25% of the rights
to the Leviathan licenses to Australia's
Woodside Petroleum Ltd. (ASX:
WPL) for $2.71 billion. The settling of these issues allows the agreement to be signed in a ceremony in Jerusalem on Thursday.
Woodside representatives met top
Ministry of Finance
officials today to raise their reservations about its tax model for gas
exports. Woodside had expected the model to set in advance the
guaranteed yield for the floating liquefied natural gas (FLNG) facility
that it will build to export gas from Leviathan, but the ministry
prefers letting the Tax Authority have the final say in a process for
each export contract.
Published by Globes [online], Israel business news - www.globes-online.com - on March 26, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2014
Link to source:
http://www.globes.co.il/en/article-leviathan-must-choose-between-turkey-and-egypt-1000927381