Partners in Israel’s Leviathan offshore gas field have signed their first export contract, to the tune of $1.2 billion, with an unlikely client: the Palestine Power Generation Company. According to the deal, the power company will be supplied with 4.75 billion cubic meters of gas to run a power plant that will be built near Jenin, a Palestinian city south of Afula. The gas field is located off the Haifa coast.
The field is owned in part by Israeli companies Delek Drilling, Avner Oil and Gas and Ratio Oil Exploration, and will be operated by Houston-based Noble Energy. The deal was signed Sunday at the American Colony Hotel in Jerusalem. In attendance were Palestinian Energy Minister Dr. Omar Kittaneh and 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.”
More than a business deal, this agreement could have political implications, given the tense nature of the current relationship between Israel and the Palestinian Authority. Some pundits have pointed out the timing of the deal coincides with US Secretary of State’s less productive peace negotiations.
“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 Jenin plant is expected to take 30 months and $300 million dollars to build. Currently, the PA consumes roughly 8% of Israel’s energy demand. The power plant will help spur both the local economy in Jenin and the economic growth of the Palestinian-controlled Area A.
The export of Israel’s natural gas has itself been subject to disagreement. After much deliberation, the Israeli cabinet decided to reduce its target energy exports from the previously set 53% to just 40%, keeping the rest at home for domestic use. However, some Knesset members were not satisfied, maintaining that the more gas retained by Israel, the lower local energy costs will be.
Another challenge is determining how to transport exported gas. Some possibilities include piping natural gas to a proposed liquefied natural gas facility in Cyprus or Turkey, or a floating liquefied natural gas facility. Each of these options comes with its own costs, risks and challenges, both physical and political.
Still, Noble Energy CEO Lawson Freeman said his company welcomed the historic agreement, Leviathan’s first.
“We hope to reach a state where we can sign more gas contracts with local customers,” he said. “We’re looking forward to seeing the development of Leviathan in the near future.”
