Leviathan Gas Sellers Agree New Contract

Leviathan Partners signed a sale and purchase agreement (SPA) with an Israeli power producer, IPM Beer Tuvia, for the supply of 13bn m³ spread over 18 years for assumed revenues of $3bn. Delek Drilling reported May 29 on the agreement in a filing to the Tel Aviv Stock Exchange (TASE). However the agreement is contingent upon a final investment decision to develop Leviathan which is expected by the end of the year. The agreement represents a price of $6.50/mn Btu, about 50% higher than today’s spot LNG prices.

The new power generation plant is expected to start production in 2019 and, if Leviathan has not been developed by then, it has signed a SPA agreement with Tamar Partnership.

This is the second SPA signed by Leviathan with an Israeli customer; it follows a small supply deal signed a few months ago with another power generation company.

In order to amass the critical mass of customers needed to secure financial backing from bank and other financial institutions for the Leviathan development, the partnership has to find a meaningful offtaker for its gas. Previously the main candidate was BG, now part of Royal Dutch Shell, but it seems that negotiations have been frozen.

In its latest development proposal, submitted to the Israeli energy ministry, Leviathan Partnership said that the main offtaker for phase 1 development would be the Egyptian entity Dolphinus Holdings. That consortium had an agreement to buy 5bn m³ spread over seven years from Tamar, beginning last year, for private Egyptian customers and to deliver it from Israel to North Sinai via the EMG subsea pipeline. Tamar Partnership still hopes it will be fulfilled this year, however the chances of that happening look slim.

Ya'acov Zalel