Israel Extends Deadline for Offshore Drilling From Leviathan

Noble Energy and Delek Group will have until 2020 to start production at giant natural gas site.

Courtesy Albatross

The Israeli government is taking another step to meet the demands of the developers of the giant Leviathan Mediterranean Sea offshore natural-gas drilling site and will agree to delay until 2020 the deadline that license holders Noble Energy of the United States and the Delek Group of Israel have to begin producing gas from the site.

The concession come against a backdrop of uncertainty in recent months over the regulatory environment that the developers face. The government, including Prime Minister Benjamin Netanyahu, has been under pressure to strike a balance between moving ahead with plans to develop the field while at the same time creating competition in the industry, since Leviathan is owned by the same firms as the nearby Tamar site, production at which began in 2013.

The issue has come to the forefront of Israel’s economic policy after Antitrust Commissioner David Gilo last month said he would step down to protest the lack of competition in the natural-gas sector. Noble Energy and Delek Group own 85% of Leviathan. Production had been expected to begin in 2018, following an initial investment of around $6.5 billion, but development has been frozen. Gilo caused an uproar in December when he ruled that Noble and Delek’s control of Tamar and Leviathan may constitute a monopoly.

Government negotiators have now acceded to the companies’ demand to extend the deadline for beginning production from March 2018 to 2020. The government’s concession will require a change in the terms of the license agreement, in addition to changes resulting from official recognition of a delay in introducing competition into the sale of natural gas from the Tamar field.

It should be noted that the government could have terminated the operators’ Leviathan license over failure to abide by the original March 2018 deadline for coming on line. Even prior the extension of the deadline, development of the offshore field had been plagued by delays for technical and regulatory reasons since the site was discovered, five years ago. It is not yet clear what, if any, guarantees, the licensees have given the government that they will meet the new production deadline.

Delek and Noble attributed their request for the latest production delay at Leviathan to the continued regulatory activity related to the site’s ownership structure. They say that Gilo’s decision, about six months ago, to retreat from a proposed settlement of antitrust concerns delayed Leviathan’s develop by at least a year.

The government also appears inclined to accede to Delek and Noble’s demand, in their capacity as holders of a 67% stake in the smaller Tamar field, to be permitted to export up to one-quarter of the natural gas from the site to Egypt. Two years ago the cabinet passed a resolution conditioning exports from Tamar on the installation of facilities to allow the transport of natural gas from the Leviathan field to Israeli territory.

With reporting from Reuters.