* New Leviathan partner to be chosen by year's end
* Cyprus speeds ahead on LNG, Israel stuck in red tape
* Floating LNG vessel could be answer for export
By Ari Rabinovitch
TEL AVIV, Nov 15 Israel, once energy poor, is
expected to become a gas exporter by the end of the decade and
the companies developing its huge offshore Leviathan find are
about to pick a fourth partner to gain the crucial know-how.
A number of foreign firms have been in a bidding war for the
fourth stake in the Leviathan field, where an estimated 17
trillion cubic feet (tcf) of gas made it the world's largest
offshore discovery of the past decade when it was found in 2010.
"A decision will be made by the end of the year," said Yigal
Landau, CEO of Ratio Oil Exploration, which is a
partner in the U.S.-Israeli consortium developing the field.
"More important is the knowledge and expertise the company
brings, especially to the 'midstream'," Landau told Reuters,
referring to the construction of an underwater pipeline and a
liquefied natural gas (LNG) terminal.
"Long term, that will pay off more than if some other
candidate comes and says they are willing to value Leviathan at
an additional billion dollars in the short term," he said.
Until now the consortium has revealed little about the
decision making process.
In a statement to the Tel Aviv Stock Exchange last month,
the Leviathan partners said Australia's Woodside Petroleum
had submitted a bid to purchase a stake of up to 30
percent. Israeli financial newspaper Globes listed Russia's
Gazprom as another leading contender.
Experts have valued Leviathan at between $5 and $7.5 billion
at this stage. Texas-based Noble Energy has a 39.66
percent share of the field. Israel's Delek Group,
through two subsidiaries, holds 45.34 percent and Ratio has the
remaining 15 percent.
Leviathan, where production is expected to begin for the
domestic market in 2016 and around 2018 for export, will be
connected both to Israel and Cyprus, Ratio's Landau said.
Nearby Cyprus in the eastern Mediterranean, with its own
newly found gas, is likely to provide the liquefaction
facilities Israel could use to reach export markets by ship.
Some analysts say future possibilities also include a Red Sea
terminal so it can target Asian markets.
An exploration frenzy in the Levant Basin - shared between
Israel, Cyprus and Lebanon - began in 2009 when Noble and Delek
announced the discovery of the Tamar field some 90 km off
Israel's coast. With reserves estimated at 9.7 tcf, Tamar alone
can meet Israel's gas needs for decades.
Leviathan was found the next year, opening the potential for
exports and spurring Israel to set up a natural gas wealth fund.
Government officials have said total revenues from gas sales
could reach $130 billion by 2040.
The U.S. Geological Survey at the time said the Levant could
hold 122 tcf of recoverable gas, making it one of the world's
richest deposits. The first big find by Cyprus followed in 2011
in its block 12, with an estimate of 7 tcf.
The gas bonanza rapidly inflamed the tensions in the region.
An initial flurry of angry exchanges between Israel and
Lebanon - which said some of Leviathan could be in its own
waters - has largely subsided. Lebanon has delayed its launch of
tenders for exploration.
Turkey maintains ethnically-split Cyprus has no right to
explore for oil or gas and it has said that companies taking
part will not be allowed to participate in new energy projects
Ankara supports a breakaway Turkish Cypriot state in
northern Cyprus. It does not have diplomatic relations with
Greek Cypriots, who run the internationally recognised
government searching for offshore gas.
Cyprus has opened talks this week with Italy's Eni,
South Korea's Kogas, France's Total and
Russia's Novatek for the development of four blocks to
the south and southeast of the island.
Meanwhile, 19 new wells are expected to be drilled in the
next two years in Israeli waters at a cost of about $2 billion,
and many of these will go on to seek oil in the layers beneath
the gas deposits.
EXPORT IS KEY
Since the countries involved in the exploration have such
small domestic markets, foreign companies are unlikely to invest
unless there is a certainty of selling the gas abroad.
In Israel, where domestic energy security is a priority and
there is an argument for conserving gas for the country's own
needs, setting export quotas has been a long process.
Only recently a government committee determined that up to
50 percent of output from the biggest wells can be exported.
That can jump to 75 percent through trades with other firms.
A planning controversy in Israel has delayed a decision
about where an LNG terminal, needed to cool the gas into liquid
form for export by ship, can be built. Some experts have even
proposed building an artificial island at sea for the plant.
The solution, for now, may be with Cyprus. Hoping that gas
riches can offset one of the worst recessions in its history,
the island state has quickly pushed ahead with plans to build an
LNG plant at Vassilikos on its southern shore.
The plan is for the plant to have three 'trains', or
facilities, each producing 5 million tonnes a year, and to be
completed by early 2019, said Solon Kassinis, director of the
Cyprus energy service.
While many Israelis want the country to have its own LNG
terminal, it is not clear the region has enough gas for two.
Steven Wardlaw, an energy specialist in London with law firm
Baker Botts, said it will be difficult to secure funding from
lenders for more than one terminal.
"There is a strong argument that there will only be one. And
Israel is a long way behind Cyprus in developing an LNG
facility," he said.
Of course, if Israel decides it needs one, as the government
has implied, it will build one as well, he said. And the plant
need not be on the Mediterranean coast.
"There is a great logic in having an LNG facility on the Red
Sea. Large tankers can't get through the Suez Canal, so from
there they can reach Asia more easily," Wardlaw said.
Also being considered is a technology, still in development,
known as a floating LNG (FLNG) terminal. It is a $3 billion
vessel that anchors near the fields and liquefies the gas.
South Korea's Daewoo Shipbuilding & Marine Engineering Co
agreed to build one for Tamar and Gazprom has signed
a letter of intent to buy the gas.
"With pipelines becoming increasingly expensive and the
geology and geopolitics of the region, FLNG is absolutely
feasible," said Kathleen Eisbrenner of Levant LNG, who helped
secure the deal for Gazprom and Daewoo with the Tamar partners.
"I hope they would be interested in working with us in
Leviathan as well," she said.