Leviathan Partners in $10 Billion Pact to Sell Natural Gas to Jordan

Coming after two-year delay, agreement paves way for giant reserve to be financial viable and begin development for production.

Off Haifa coast, oil rig at enormous Leviathan natural gas field.
An oil rig in the Leviathan natural gas field off the Haifa coast. Albatross

The partners of Leviathan field on Monday signed an agreement to export some $10 billion of gas to Jordan over 15 years, marking a critical milestone on the path to developing Israel’s biggest reserve of natural gas.

The agreement with Jordan’s National Electric Power Company came two years after the two sides signed a memorandum of understanding. The delay was caused by the collapse of world energy prices, regulatory in turmoil in Israel and political opposition in Jordan to importing Israeli gas.

The contract brings Leviathan closer to the day that its partners –Texas-based Noble Energy and Israel’s Delek Group and Ratio Energy – can begin the multi-billion work of bringing the field into production.

“Signing the export agreement for Leviathan with the Jordan electric company is an historic event and positions the Leviathan reserve as a major factor in the regional energy map. The Leviathan partners will continue working diligently to reach more agreements, including Egypt, Turkey and the Palestinian Authority,” said Yossi Abu, CEO of Delek Drilling and Avner, the two Delek Group companies with stakes in the field.

News of the agreement sent the Tel Aviv Stock Exchange’s Oil & Gas index up 3%, with shares of Leviathan’s Israeli partners rising more than 6%. Avner closed 6.3% higher at 2.61 shekels (70 cents), Dekel Drilling also rose 6.3% to 13.79 and Ratio gained 6.2% to 31 agorot.

In New York, Noble was up 2.5% at $33.84 early afternoon local time.

“Without a doubt this is excellent news for the partnership and now everyone will be looking beyond to a financing agreement and the signing of additional contract both in the domestic market and for export,” said Liran Lublin, energy analyst at IBI Israel Brokerage & Investments.

She set target prices of 3 shekels for Avner, 14.70 for Delek Drilling and 40 agorot for Ratio.

Development of the Leviathan fields and its approximately 620 billion cubic meters of gas has hinged on the partners signing contracts to sell enough gas to make the project financially viable -- a figure of between 5 and 6 billion cubic meters annually.

On Monday, J. Keith Elliot, Noble’s senior vice president for the East Mediterranean, said they had now contracted to sell between 4 and 4.5 billion cubic meters annually, including the Jordanian contract and two others with Israeli customers.

The company said the first deliveries of Leviathan gas would come about three years after the go-ahead for the field’s development, which it said come as early as end 2016. The contract with Jordan is for 45 BCM over 15 years, with an option to increase it by 0.5 BC.

The memorandum of understanding signed in 2014 was for the same amount of gas delivered over the same term, but the headline figure for its value was $15 billion. That reflected a base price of about $7.50 per million British thermal units.

The drop in global energy prices since then has reduced the headline value to $10 billion. The new base price wasn’t disclosed on Monday, but it is believed to be in the range of $6 to $6.50, with a much lower floor price. The price will be linked to the price of Brent crude oil.

Jordan’s Jordan Bromine Company and Arab Potash Company earlier signed to buy gas from Israel’s Tamar field and Israel last year approved plans for a 15.5 kilometer pipeline near the Dead Sea to export the gas.

Nevertheless, buying Israeli energy remains highly controversial in energy-starved Jordan.

Jawad Anani, Jordan’s deputy prime minister for economic affairs and industry minister, told The Financial Times on Sunday the country as seeking trade and financial concessions from Israel to “mitigate the backlash” he expected the gas deal will bring.

One way to the two sides agreed to insulate the government from criticism are plans to export the gas through a foreign-registered company called NBL Jordan Marketing. However, Israel’s tax authorities will have to approve to plan.