Shell's Acquisition of BG and the Leviathan Deal
Royal Dutch Shell’s acquisition of British Gas could jeopardise the deal to export natural gas from the Leviathan field offshore Israel to Egypt. In June 2014, the partners in Israel’s largest offshore field signed a preliminary agreement valued at $30 bn to supply gas to BG’s LNG plant in Idku, Egypt, via an undersea pipeline.
Since its discovery of large offshore natural gas fields, Israel has been in talks to export some of its gas to regional neighbours. In June 2013, the country's cabinet approved, after a lengthy domestic debate, to export 40% of Israel's proven reserves. The decision was ratified by Israel's Supreme court in October of the same year. Historically reliant on Egypt to import most of its natural gas needs, Israel has enough gas to satisfy domestic demand for a decade and become a net natural gas exporter. Egypt and Jordan were eyed by Israel as potential customers given their need for natural gas and their geographical proximity. Egypt is undergoing a severe energy crisis at home, and in need to import natural gas. Shell’s takeover of BG has however raised the question of whether the deal will come to fruition for fear that Shell may not wish to work closely with Israel.
Israel has also been eying exports to Jordan. A deal to supply natural gas from Israel’s Leviathan to Jordan’s state-owned National Electric Power Co. (NEPCO) has been put on hold since December’s announcement by David Gilo, Israel’s antitrust commissioner, that Noble and Delek constituted a cartel. Gilo had previously agreed that the Leviathan partners could retain their shares in the partnership if they sold their stakes in two smaller gas fields, Tanin and Karish but have since had a change of heart.
The dispute risks delaying production of the Leviathan, previously scheduled for 2018, and threatens Israel’s regional ambitions. A final decision is pending, but rumours are spreading that the new government in Israel may allow a shift towards a more lenient resolution of the dispute that does not involve breaking up Noble and Delek's parternship. The outcome of the dispute is uncertain, but what is certain is that Israel urgently needs to solve its ongoing domestic debates related to its natural gas discoveries to secure regional deals and retain international investors.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat