Delek Drilling, a partner in the Tamar natural gas field, said Tuesday that Russian gas giant Gazprom had agreed in principle to finance an offshore liquefied natural gas facility and to sell LNG to customers abroad.
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The agreement, which comes after a year of negotiations, calls for Gazprom to oversee annual sales of 3 million tons of LNG, or about 4.2 billion cubic meters, over 20 years.
The final terms will be subject to an Israeli government decision on the ceiling of natural gas exports.
"The signing of the agreement in principle with Gazprom is not just an important milestone in advancing Tamar's floating liquefied natural gas facility, which is expected to be one of the first in the world. It's also strategic cooperation with a significant international player like Gazprom," said Gideon Tadmor, the CEO of Delek Group's Avner Oil Exploration partnership and chairman of Delek Drilling.
Last week, Russian President Vladimir Putin reiterated a call for increased LNG efforts to diversify Russia's gas exports, which focus on the weak European market.
A deal to buy liquefied natural gas from Israel would enable Gazprom, the world's biggest conventional gas producer, to export directly to high-priced markets in Japan, South Korea, China and India, currently inaccessible via pipeline.
The Tamar partnership, led by U.S.-based Noble Energy (36% ), Delek Group subsidiaries (31% ), Isramco (29% ) and Alon Natural Gas Exploration (4% ), are keen on exporting gas from the field, which is expected to begin producing in about a month.
The partners are looking at exporting about 84 billion cubic meters of the estimated 260 billion cubic meters of gas Tamar is estimated to contain.
The accord announced Tuesday between Gazprom and Levant LNG, a joint venture owned by South Korean conglomerate Daewoo and an American firm, Next Decade, responsible for marketing Tamar's LNG. The Tamar partnership has an option to buy into Levant LNG. Daewoo will build the floating LNG facility.
Gazprom, which is controlled by the Russian government, dominates the natural gas market in Europe, delivering it by pipeline. The Russian company also sells LNG to markets in East Asia at prices of up to about $18 per British thermal unit, or double the price it fetches in Europe.
Ella Fried, an analyst at Leumi Capital Markets, said there were still issues to be resolved before LNG exports could begin, in particular that the Israeli government had yet to adopt a policy on natural gas exports. "Also, floating LNG (FLNG) platforms are still in the development stage around the world," Fried said.
Delek and Noble Energy also control the giant Leviathan gas field off the coast near Haifa, together with Ratio Oil Exploration. They have signed an agreement in principle to sell a 30% stake in the field to Australia's Woodside, which would also export LNG. This project also awaits export approval from Jerusalem.
The government's Tzemach committee, which examined gas export policy last year, recommended letting at least 50% of Israel's natural gas be sold abroad if 450 billion cubic meters are set aside over the next 25 years for domestic consumption.
The committee's report was presented to Prime Minister Benjamin Netanyahu in August but still needs approval.
With reporting by Reuters.