Leviathan Partners Split Up in Cyprus After Rejecting Idea in Israel

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Activists protest the royalty terms given to Israeli natural-gas exporters, March 26, 2014Credit: Tomer Appelbaum

The partners in Israel’s offshore natural-gas fields rejected a plan by Israeli regulators that would have introduced some competition into the local Israel’s local natural-gas market, but put that plan into practice in applying for a tender to sell gas to Cyprus.

Israel’s natural-gas sector is controlled by a monopoly, the partnership between Israel’s Delek Group and the U.S.-based Noble Energy. They control 80% of Israel’s proven natural-gas fields, while Noble is responsible for 100% of gas field operations and 68% of operations at potential future fields.

Regulators had proposed injecting competition into the market by having each of the partners sell its share of the gas from Israel’s two biggest fields, Tamar and Leviathan, separately.

Delek and Noble rejected the proposal, and Antitrust Commissioner David Gilo stepped back from the idea as a result.

But now it seems that the partners themselves split up in a bid to sell gas to Cyprus.

The Leviathan partners announced six months ago that they were participating in an international tender to sell gas to Cyprus. But now it emerges that only the Israeli partners in the field, Delek Group and minority partner Ratio Oil and Gas Exploration, were partners in the bid. Noble did not take part.

Gilo is due to submit to the antitrust court a compromise hashed out with Delek and Noble allowing them to retain control of Leviathan so long as they sell off two significantly smaller gas fields, Karish and Tanin. Leviathan is by far Israel’s largest reserve, and was considered the world’s largest natural-gas find of the last decade. Gilo explained the agreement by saying it was the only solution possible that would create more competition.

Six months ago, Cyprus’ national natural gas company, DEFA, published an international tender to purchase 0.7 billion cubic meters to 0.95 billion cubic meters of natural gas a year, for a period of six to nine years. At the time, Delek, Noble and Ratio sought permission from Gilo to apply for the tender.

Delek and Ratio have a good shot of winning the tender due to Israel’s proximity to Cyprus – the partners could supply Cyprus via a pipeline, where as other bidders would have to ship in more expensive liquefied natural gas.

During Antitrust Authority discussions on the proposal to force the partners to sell gas separately, attorney Zvi Agmon stated, on behalf of Delek and Noble, “Regarding the option of developing Leviathan while the partners are selling gas separately, we’ve discussed this to no small extent and explained why this is impossible.” The statement was made public a month ago. The trustbuster did not push the matter further during that discussion.

Noble and Delek are expected to provide Israel with at least 80% of its natural-gas needs by 2020.

The Leviathan partners said in response that all sales from Leviathan, including any potential sales to Cyprus, would be conducted jointly by all partners. They noted that a potential pipeline to Cyprus could be built by a third party that does not include all the partners.

The Antitrust Authority declined to comment.

Cyprus, Egypt to ramp up gas talks

Meanwhile, Cyprus and Egypt agreed yesterday to accelerate talks on the potential export of Cypriot gas to Egypt, once the resources come on line.

Cyprus discovered natural gas offshore in late 2011, while once gas-rich Egypt has turned into a net importer from an exporter in recent years.

“Egypt has a very huge [natural gas] infrastructure and can accommodate the production coming from the Cyprus economic waters,” Egyptian Minister of Petroleum and Mineral Resources Sherif Ismail told reporters in Nicosia, Cyprus.

In a joint statement, Ismail and his Cypriot counterpart Yiorgos Lakkotrypis said they had agreed to expedite discussions regarding natural gas exports to Egypt.

Noble Energy, Delek and Israel’s Avner Oil Exploration hold an exploration concession to one Cypriot offshore field with proven reserves, while Italy’s ENI and France’s Total have concessions in other areas south of Cyprus.

The Cypriot gas fields are close to Israel’s major gas fields.

With reporting by Reuters.

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