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Leviathan partners sign first gas export agreement with Palestinian power firm
By SHARON UDASIN
01/06/2014
The drilling partners behind Israel’s large gas reservoir have sealed a $1.2 billion sales agreement with the Palestine Power Generation Company.
 
The drilling partners behind Israel’s large Leviathan gas reservoir have sealed their first export deal for the basin – a $1.2 billion sales agreement with the Palestine Power Generation Company.

According to the agreement, signed at the American Colony Hotel in Jerusalem on Sunday, PPGC will buy around 4.75 billion cubic meters of gas for a period of 20 years, to fuel a future power plant in Jenin with a 200-megawatt capacity.

Attending the signing ceremony on Sunday was Palestinian Energy Minister Dr. Omar Kittaneh, as well as executives from the reservoir’s stakeholders: the Delek Group, Noble Energy and Ratio Oil Exploration.

“This is a dual historic event: the first contract to supply gas from the Leviathan reservoir, which is Israel’s largest natural gas reservoir, and the first contract to export gas for the sale of natural gas to a company in the Palestinian Authority,” said Gideon Tadmor, chairman of Delek Drilling and CEO of Avner Oil Exploration. “The Leviathan project is expected to have a significant positive impact on the Israeli economy and on its geopolitical positioning.

We hope that following the signing of the contract today, more export contracts will be signed with neighboring countries.”

The Leviathan reservoir, located about 130 kilometers west of Haifa, contains about 537 b.cu.m. of natural gas, which is expected to begin flowing in 2017. Leviathan’s smaller, 280-b.cu.m. neighbor to its east, Tamar, began generating gas for the Israeli domestic market in March 2013.

Houston-based Noble Energy owns 39.66 percent in Leviathan, while Delek Drilling and Avner Oil Exploration – subsidiaries of the Delek Group – each own 22.67% and Ratio Oil Exploration holds 15%.

Construction time for the power plant in Jenin will take about 30 months and cost around $300 million, the Leviathan partners explained. To date, the Palestinian Authority consumes 8% of Israel’s total electricity demand, with an annual increase in demand of about 6%, the partners added.

The company behind the PPGC facility belongs to a variety of shareholders, with the main investor being the Palestine Electric Company (PEC) – a publicly owned firm traded on the Palestinian Securities Exchange since 2004. The company’s ownership is made up of 33% public shareholders and 67% private shareholders, according to the firm.

PEC is the 99.99% owner of the Gas Power Generating Private Limited Company – responsible for Gaza’s sole power plant – and established the PPGC in the West Bank in 2010, company data said.

An additional major stakeholder in PPGC is CCC, a company that specializes in the construction and operation of energy projects, the Leviathan partners explained.

“I believe that a strong and stable economy between the parties will lead to peace and stability in the entire region – and everyone will benefit from economic prosperity and growth,” said Yitzhak Tshuva, controlling shareholder of the Delek Group, at the signing ceremony. “Peace is a joint venture, economic cooperation, mutual trust and respect. Economic cooperation such as the agreement that was signed today will help to bring the nations closer and will contribute to laying the foundations for peace.”

The first export agreement between the Leviathan developers and a foreign buyer occurs following a long wave of uncertainty surrounding the country’s natural gas exports.

Disagreement on export quantities among Israeli government officials and members of the public delayed the export process from moving forward.

Following a year of discussions, the Zemach Committee – led by then Energy and Water Ministry director-general Shaul Zemach – recommended capping exports at 53% in August 2012. After an uproar among environmentalists ensued, the government eventually settled on a 40% cap on June 23, 2013.

Yet Knesset members across the board, led by MK Shelly Yacimovich (Labor), were dissatisfied that the authority to determine gas export quantities was not in the hands of the Knesset. A petition she filed to the High Court of Justice ultimately met rejection on October 21, 2013.

While an export policy was at long last in place, the question still remained to whom the partners would be selling the gas. On Sunday, however, the stakeholders began to provide answers.

“We believe that the potential for oil and gas exploration in the economic waters of Israel has not yet been fully realized, and therefore we intend to continue, together with our partners and with the entire natural gas industry in Israel, with the exploration activity,” Tadmor said.

Lawson Freeman, vice president for the Eastern Mediterranean at Noble Energy, praised what he called a “historic agreement.”

“We hope to be in a position, soon, to sign additional Leviathan agreements for the supply of natural gas to the domestic market and for export projects,” Freeman said. “We continue to work toward developing the Leviathan field as soon as possible.”

With the signing of this specific agreement, Tshuva said that he hopes to see the creation of new jobs as well as further cooperation between Israelis and Palestinians on a business level.

Yossi Abu, CEO of Delek Drilling, echoed Tshuva’s comments, adding that “natural gas acts as a bridge to peace” and Leviathan therefore brings “good news” to the entire region and the world.

“I hope in the future also citizens of neighboring countries can benefit from the development of the gas reservoirs discovered in recent years,” Abu said.
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