Australia Becomes First Major Customer for Israeli Gas

LONDON (Reuters) -

Israel has taken a step closer to becoming a natural gas exporter after Australia’s Woodside Petroleum signed a deal to take a 25 percent stake in the huge East Mediterranean Leviathan gas field.

The Australian company, considered a leader in the booming liquefied natural gas (LNG) sector, signed a preliminary agreement on Thursday to buy a quarter of the Leviathan field off the coast of Israel for up to $2.55 billion.

Leviathan is estimated to hold about 19 trillion cubic feet of natural gas, enough to supply all of Europe for over a year.

The field is being developed by U.S.-based Noble Energy Corp, which will remain the project’s lead partner with a 30 percent stake, while the other groups involved, Israel’s Delek Group, Avner Oil Exploration and Ratio Oil Exploration, will each sell one-quarter of their stakes to Woodside.

“Woodside is one of the leading companies in the world in the … development of LNG facilities. The company brings with it rich experience … and will be a significant boost for the Leviathan partnership,” Delek Drilling and Avner said in a statement.

Despite the prospect of lucrative gas exports, analysts said Leviathan would initially serve Israel’s domestic market.

“Leviathan will be initially developed as a domestic gas project with gross production of 800 million cubic feet per day and first gas expected in 2017,” Bernstein research said on Friday.

Once domestic supplies are up and running, Bernstein said that Woodside’s involvement in the project meant that exports in the form of LNG would become more likely.

“There will be up to 9 trillion cubic feet of gas exports. Although it remains uncertain whether gas exports will be as LNG or pipeline, Woodside’s involvement increases the probability of a floating LNG scheme.”

Analysts said the Leviathan field may also hold significant oil reserves of up to 720 million barrels, and that drilling was expected to begin in 2015.

The biggest question regarding gas exports is whether they will come in the form of a pipeline or LNG terminal.

Israel has the option to build a pipeline to serve Europe’s large but stagnating gas market or to invest in a more expensive LNG export terminal which would allow shipments to Asia’s markets, where prices are currently twice as high as in Europe.

Although an LNG terminal would allow access to global markets, the cheaper option of a pipeline to Turkey and the Palestinian Authority has recently gained traction.