Government considering allowing exports from Tamar before Leviathan connection

Sources: Enabling int'l gas sales from Tamar prior to Leviathan’s connection would permit companies to advance deals with neighboring countries.

By SHARON UDASIN
A man points as he stands on a tanker carrying liquified natural gas, ten miles off the coast from Hadera (photo credit: REUTERS)
A man points as he stands on a tanker carrying liquified natural gas, ten miles off the coast from Hadera
(photo credit: REUTERS)
Government officials are considering allowing export from the Tamar natural gas reservoir prior to the connection of its larger Leviathan neighbor, as part of negotiations aimed at solving a disagreement with the Delek Group and Noble Energy gas developers, government sources told The Jerusalem Post on Wednesday.
Enabling international gas sales from Tamar prior to Leviathan’s connection – which could still take many years – would permit the companies to advance deals with neighboring countries, the sources said. Such an arrangement, for example, would allow for the materialization of a deal between the Tamar reservoir partners and Spanish firm Union Fenosa Gas, S.A.’s Egyptian liquefied natural gas (LNG) plant, the sources added.
Previous government decisions regarding gas export stipulate that the companies cannot export from the 282-billion cubic meter Tamar reservoir, which has been serving Israel since March 2013, until its 621-b.cu.m.
neighbor Leviathan is connected, the sources explained.
Although details regarding changes in export policy are still under discussion, members of an interministerial team – from the Finance Ministry, the National Economic Council and the National Infrastructure, Energy and Water Ministry – said that Delek Group and Noble Energy representatives agreed to a compromise outline presented to the companies on Tuesday night. The compromise is the results of months of negotiations that ensued after Antitrust Authority Commissioner David Gilo declared he would review whether the dominance of Delek and Noble in Israel’s Mediterranean gas sector constitutes an illegal “restrictive arrangement.”
The compromise requires that the Delek Group’s subsidiaries Delek Drilling and Avner Oil Exploration exit the neighboring Tamar reservoir entirely, selling its assets there within six years, government sources said. Houston-based Noble Energy would only need to dilute its assets from its 36-percent share today to 25%, and could remain the basin’s operator, according to the terms of the new outline.
Both companies would be required to sell their holdings in two much smaller offshore reservoirs, Karish and Tanin.
Unlike previous drafts of the compromise outline, this version revokes a mandate that all of Leviathan shareholders market their gas to the Israeli market separately.
Other issues, such as exports and gas pricing, are still under discussion, government sources said.
Gilo remains staunchly in favor of separate marketing from the Leviathan reservoir and is against Noble Energy selling any gas from the Tamar basin to the Israeli market.
Today, Noble Energy holds 36% of the Tamar reservoir, located about 80 km. west of Haifa, while Delek Drilling and Avner Oil Exploration each owns 15.625%. In addition, Isramco has a 28.75% stake and Dor Gas Exploration owns 4%.
In the Leviathan basin, located about 130 km. west of Haifa, Noble Energy has a 39.66% share, while Delek Drilling and Avner Oil each own 22.67% and Ratio Oil Exploration holds 15%.
While Leviathan basin was initially expected to be connected by 2017-2018, its development has been frozen due to disagreements among the companies and the government – beginning with Gilo’s December 23 announcement that he would be reviewing the status of Delek and Noble.
At the time, the commissioner also withdrew his support for a proposed consent decree that would have allowed the companies to resolve the issue by simply selling the two smaller reservoirs, Karish and Tanin.
By February 18, an interministerial team presented Noble Energy and the Delek Group with its first draft outline to solve the stalemate. But the following week, Gilo announced that he would postpone his decision regarding the status of the companies for another two months, allowing for negotiations to continue.
Since then, a series of discussions among the various government officials and representatives of the companies have taken place, until an announcement last week that the interministerial team members had settled on terms of compromise, without the consent of Gilo.
Government sources stressed that enabling gas exports from Tamar before Leviathan’s connection would allow preliminary export deals to materialize quickly, to the benefit of the companies. The sources mentioned a possible deal in which the Tamar partners sell 71 b.cu.m. of gas to Union Fenosa Gas’s Egyptian liquefied natural gas plant, which is currently only a preliminary agreement.
Delek and Noble have asked the government to increase the export quotas permitted to them from the Leviathan reservoir.
Government sources confirmed that the companies had asked but said that the matter was still under discussion.
The cabinet in June 2013 decided to cap natural gas exports at 40% of production, also establishing that 540 b.cu.m of gas would be maintained for domestic usage.
This decision involved many months of debate and continued to generate controversy thereafter.
Following a year of discussions, the Zemach Committee – an inter-ministerial committee led by then-Energy and Water Ministry director-general Shaul Zemach – recommended in August 2012 that the country keep 450 b.cu.m.
of gas at home and cap exports at 500 b.cu.m., or 53% of production.
However, the ensuing uproar among those who demanded more gas be kept at home led the cabinet to settle on June 23, 2013 on the 540-b.cu.m. figure.
A number of gas export arrangements – most of which are still only nonbinding, preliminary letters of intent – exist with Israel’s neighbors, in addition to the potential deal in Egypt with Union Fenosa Gas.
Other regional letters of intent that still have not yet become firm contracts include the provision of 45 b.cu.m. of Leviathan gas to Jordan’s National Electric Power Company and the supply of 105 b.cu.m. of Leviathan gas to the British Gas LNG plant in Egypt.
The Tamar partners have signed a full-fledged agreement to supply gas to Egypt’s Dolphinus Holdings Limited for seven years, providing a minimum of 5 b.cu.m. during the first three years of the contract, as well as one to provide 2.2 b.cu.m. of gas to the Arab Potash and Jordan Bromine companies over 15 years, for use at their respective facilities near the Dead Sea.
An increase in export quotas, according to additional sources close to the negotiations, could pave the way for improved relations with Jordan. Such a decision “would not damage the Israeli market,” since these was decreased demand in Israel, and could be “really important to stabilize relations,” these sources said