Woodside's Withdrawal from the Leviathan Deal
The Woodside-Israeli deal that would allow the Australian giant to purchase 25% of the 540 bcm Leviathan field for up to USD 2.7 billion did not close end of March as expected due to a tax dispute between Woodside and the Israeli tax authority. With its extensive LNG expertise, Woodside would have introduced the possibility for Israel to access the LNG market and flexibility in the choice of customer including the Asian market where gas sells for almost double the price of Europe’s.
Woodside last-minute withdrawal from the deal threatens the timely development of the field, its investment considered key to bringing the Leviathan to market. The original calculations suggesting that gas would enter the Israeli market by 2017 and the LNG market by 2020 now depend on how things progress with Israel and Woodside. The development of the Leviathan deal requires billions of dollars and without Woodside’s participation, it would be an additional challenge for the Leviathan partners to secure the needed funds. Despite Woodside surprise pull-out of the deal, discussions continue between the Australian company and the Israeli government. The disagreement is not the first one of its kind between the parties. A previous dispute touched upon Woodside’s investment return. Delays are common in deals of such magnitude and both parties seem keen to achieve a resolution of the dispute. Israel’s reputation is at stake at a time where Israel is trying to position itself as an upcoming energy producer in the Eastern Mediterranean.
Israel will nevertheless have to simultaneously study other options as talks continue with Woodside in case the deal fails to ever close. A pipeline to Turkey has been under consideration. Turkey, with its increasing natural gas demand and its strategic access to a Europe looking to diversify away from Russia could be an option for Israel. The Israeli-Turkish recent reconciliation over the 2010 Mavi Marmara incident is a starting point towards this direction. Diplomatic efforts continue to completely resume ties between the two countries. More than 10 Turkish companies have reportedly submitted bids for the tender of a pipeline from the Leviathan field to Southern Turkey.
After a lengthy national debate, Israel’s Supreme Court ratified in October 2013 a June 2013 cabinet decision to export only around 40% of the country’s proven reserves to the disappointment of international investors interested in participating in the development of the country’s offshore hydrocarbon. The Eastern Mediterranean region has recently become the object of interest in the energy industry for its potential to constitute a new source of natural gas that could potentially contribute in diversifying Europe’s energy portfolio.
Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean. Email Karen on ayat_karen@hotmail.com. Follow her on Twitter: @karenayat