Israel will be supplying critical quantities of natural gas to Jordan upon the development of the Leviathan reservoir as a result of a $10 billion deal cemented on Monday.
The Leviathan basin partners will be supplying Jordan’s National Electric Power Company Ltd. (NEPCO) with a gross quantity of 45 billion cubic meters (1.6 trillion cubic feet) of gas, or 8.5 million cubic meters (300 million cubic feet) daily, over a 15-year period, according to the agreement. Houston- based Noble Energy – which holds the largest share in the 621-BCM Leviathan reservoir – announced the execution of the gas sales and purchase agreement on Monday afternoon.
National gas supplied through the contract will involve industry-typical “take-orpay” commitments, with pricing linked to Brent oil and a firm floor price, Noble Energy said. The company estimated that gross contract revenues would amount to about $10b.
(Map of the proposed plan: Red line represents existing pipeline. Black checkered line represents pipeline planned for Israel. Green checkered line represents pipeline planned for Jordan. Photo provided by: Delek)
The buyer also has the option to purchase an incremental 1.4 MCM per day for a total of up to 9.9-MCM per day, the statement added.
“We look forward to supplying natural gas resources for energy and economic development to the people of Jordan,” said J. Keith Elliot, Noble Energy’s senior vice president for the eastern Mediterranean. “This first export [gas sales and purchase agreement] for Leviathan further underpins the volumes supporting project sanction.”
The Leviathan reservoir developers aim to complete construction and development of the field, and begin delivering gas to Jordan, in as little as three years, Noble Energy said.
Subject to regulatory approvals from both countries, sales to NEPCO are expected to begin as soon as the field is ready, the company added. The initial field development will involve a sub-sea connection to a shallow- water platform with a pipeline leading to Jordan.
In addition to Noble Energy, other stakeholders in the reservoir include Delek Group subsidiaries Delek Drilling and Avner Oil Exploration – each holding 22.67% – and Ratio Oil Exploration, with 15%.
“The approved plan of development incorporates an expandable platform, which will enable us to accelerate Leviathan’s first gas while maintaining the ability to increase production capacity to meet growing future demand,” Elliot said. “While continuing to advance negotiations with additional Israeli industrial and power companies and other regional customers, we are also progressing the other work streams necessary for a final investment decision as early as the end of 2016.”
Monday’s agreement stems from a non-binding letter of intent signed between Noble Energy and NEPCO in September 2014, regarding the supply of about 45 BCM of gas. At the time, the parties expected the final gas purchase and sales agreement to be completed by the end of 2014. However, the Israeli gas sector was in flux due to internal political squabbles from December 2014 through early 2016.
While the contract signed with NEPCO is the first such deal to occur between Israeli reservoir stakeholders and a Jordanian government body, gas is soon expected to start flowing to two private companies across the border.
In February 2014, the partners in the neighboring Tamar reservoir signed a $500 million deal to supply 1.8 BCM of gas to the Jordan Bromine and Arab Potash companies, over a 15-year period. Gas is expected to begin arriving to these firms in late 2016, according to Noble Energy, which is also a partner in Tamar.
Following the announcement of Monday’s agreement, Delek Drilling and Avner Oil Exploration CEO Yossi Abu stressed that the deal “positions the Leviathan project in the center of the regional energy map.”
“The supply of natural gas to Jordan will enable the people of Jordan to benefit from the same clean, efficient and economical energy source as in Israel and will contribute to the continuing economic growth and prosperity of the respective economies of Jordan and Israel,” Abu said.
“The partners in the Leviathan project will continue to pursue long-term agreements with other customers in the eastern Mediterranean, including in Egypt, Turkey and the Palestinian Authority.”
National Infrastructure, Energy and Water Minister Yuval Steinitz welcomed the deal, describing it as “a national achievement of utmost importance.”
“This is an important milestone in strengthening relations and in strategic cooperation between Israel and Jordan and the entire region,” Steinitz said.
Referring back to the contentious “gas outline” that rattled Israel’s entire gas industry for all of 2015, Steinitz slammed those who were against this framework agreement, which ultimately received government approval in December.
Clashes over the gas outline all but froze Israel’s hydrocarbons sector from December 2014 through the beginning of this year. The goal of the deal was to settle disagreements between the country’s developers and the government, following a dispute with the antitrust commissioner.
“Opponents of the outline should ask the forgiveness of the people of Israel on the upcoming Yom Kippur,” Steinitz said. “If the hallucinatory deception campaign that they led was successful, Israel would have lost one of its most strategic assets. The outline proves itself, as I’ve said all along, and will lead to the rapid development of the Leviathan reservoir.”
“This is a historic moment in which Israel is becoming for the first time an exporter of energy and natural gas,” Steinitz continued. “I have no doubt that additional agreements with other countries will come in the future, along with additional gas discoveries.”
One of the chief opponents, MK Shelly Yacimovich (Zionist Union), said Steinitz’s demand regarding forgiveness “indicates unfathomable and disturbing ignorance.”
“The outline was not linked to exports to Jordan and the Palestinian Authority, and from time immemorial those two were included together with gas required for the Israeli market, not as part of exports, and not one person objected,” Yacimovich said.
“Steinitz should be deeply ashamed that a year has passed since the extolled outline was approved, and Israeli citizens are still waiting for news of natural gas.”
As far as Leviathan’s development is considered, Bini Zomer, Israel country manager for Noble Energy, stressed that the project is moving forward.
“The signing of this contract is historic in terms of what it means for the development of the oil and gas industry in Israel, the positive impact it will have on our economy, environment and energy security and, more importantly, the positive impact this industry in general, and Leviathan in particular, will have on our relationship with our neighbors,” Zomer said.
“Noble Energy is proud to be a partner with the State of Israel and its citizens in the development of this industry and looks forward to enhancing these benefits through growing the domestic market and expanding exports to neighboring countries,” he added.
According to energy consultant Amit Mor, the commitment made by the Leviathan partners and Jordan’s NEPCO “economic, geopolitical and strategic importance” to both Israel and Jordan.
“Economically, in four years’ time, Jordan’s energy security will be fortified by obtaining stable natural gas source in fair market prices, in addition to the [liquefied natural gas] LNG import alternative, which Jordan is already utilizing, via an LNG regasification ship, which is anchored in Aqaba,” said Mor, who is the CEO of the Eco Energy Financial and Strategic Consulting firm and a lecturer at the Interdisciplinary Center Herzliya.
Although LNG prices are today very low, at approximately $5 per million British thermal unit, the prices could very easily can increase in the future to past levels of $12-$15 per mmBtu, he explained.
“The agreement demonstrates that despite ongoing unrest in the West Bank and Gaza, the Jordanian government is willing to sign a strategic agreement with Israel, which in the past five decades has serving as a security ally of Jordan,” Mor said.
“From an Israeli point of view, the Jordanian market is serving as an anchor market for the development of the Leviathan field that is enabling the financing of a $3.5-4b. project,” he added.
“The development of the Leviathan project is crucial for the national security of Israel, which is currently getting all its gas from one field, the Tamar field. Thus, the diversification of gas sources is a must, and this will be enabled by the Jordanian market.”