Due to Israel's failure to solve a looming antitrust dispute, a deal to supply natural gas to a future Palestinian power plant will soon be terminated, the Leviathan reservoir partners reported to the Tel Aviv Stock Exchange on Wednesday morning.
On January 5, 2014, the Leviathan reservoir stakeholders cemented their first export deal for the basin – the sale of about 4.75 billion cubic meters of gas over the course of 20 years to the Palestine Power Generation Company (PPGC), to fuel a future power plant in Jenin with a 200-megawatt capacity. As of Tuesday, however, PPGC issued a notice to the basin's partners alerting them to the deal's contingent termination, due to the failure to fulfill a number of required conditions, the TASE report said.
Despite the relatively small quantity of gas to be supplied in comparison to the 621-b.cu.m. volume of the Leviathan reservoir, the partners emphasized the deal's enormous geopolitical implications at last year's signing. At the time, the deal had been estimated to be worth some $1.2 billion.
PPGC announced its intentions on Tuesday "due to the non-fulfillment of the conditions precedent set forth in the agreement, and mainly the non-receipt of the approval by the Antitrust Authority, the delay in approval of the development of the Leviathan project and the non-receipt of other regulatory approvals required by law, as set forth in the supply agreement," the TASE report said.
"The termination will take effect within 30 days, unless approval of the Antitrust Authority is received by the said date, or within 14 days, unless by such date the other conditions precedent set forth in agreement are fulfilled," the report continued.
The future of the Leviathan reservoir – and its two main stakeholders, Houston-based Noble Energy and the Delek Group – became uncertain on December 23 when Antitrust Authority commissioner David Gilo announced that he would be reconsidering whether their presence in Israel’s Mediterranean gas sector constitutes an illegal “restrictive arrangement,” similar to a cartel.
In addition, the commissioner withdrew his support for a proposed consent decree that would have allowed the companies to simply sell two smaller gas reservoirs, in favor of remaining in both Leviathan and Tamar – a neighboring smaller reservoir, in which Noble Energy and Delek are also the principle shareholders.
The 282-billion cubic meter Tamar reservoir, located 80 kilometers west of Haifa, has been online since March 2013 and is meant to fulfill mostly domestic demands. The neighboring Leviathan basin, about 130 km. west of Haifa, has yet to be developed but is likely to serve a combination of export and local customers.
On February 18, an interministerial team – including Antitrust Authority, Finance Ministry, National Economic Council and National Infrastructure, Energy and Water Ministry officials – presented Noble Energy and the Delek Group with a draft outline aimed at solving a situation that has frozen Leviathan’s development.
In the outline, the united government front demanded that the Delek Group exit the Tamar reservoir entirely and that Noble Energy sell a portion of its shares of the basin – specifically, any gas intended for the domestic market. The document also called for the companies to separately market any gas from Leviathan directed to Israeli consumers. In addition, the partners would be required to sell their two smaller reservoirs, Karish and Tanin, as had been originally suggested in the proposed consent decree.
A week later, however, on February 24, Gilo announced that he would be postponing his decision regarding the status of the companies for another two months, in order to allow for closed-door negotiations between the government and the firms to continue.
Due to the requirement of government approval on many components of the dispute, the decision's postponement indicates that a settlement will only occur following the formation of a new government.