* Leviathan partners to focus on gas exports by pipeline
* Woodside open to future talks on different terms
* Near-term growth options for Woodside point to M&A
* Woodside shares jump 1.4 pct in weaker market (Adds analyst, Noble Energy comments)
By Sonali Paul
MELBOURNE, May 21 (Reuters) - Woodside Petroleum Ltd , Australia's top gas producer, has ditched long-awaited plans to take a stake worth up to $2.7 billion in Israel's flagship Leviathan gas project, as the venture focuses on exporting by pipeline.
Woodside's decision to end an agreement to buy a 25 percent stake in the project leaves the partners without the expertise in liquefied natural gas (LNG) that was key to helping Israel expand its gas export options beyond the Middle East to Asia.
"All parties have worked very hard to secure an outcome which would be commercially acceptable, but after many months of negotiations it is time to acknowledge we will not get there under the current proposal," Woodside Chief Executive Peter Coleman said in a statement.
The leader of the project, Texas-based Noble Energy Inc , said while talks with Woodside had fallen through, development of Leviathan would go ahead with support from the Israeli government and the existing partners.
Plans for Leviathan had changed significantly over the past two years, Noble said, as demand for gas had grown in countries around Israel and in southern Europe, effectively ruling out the need for Woodside's experience, at least in the near-term.
"The emergence of these regional markets, which are accessible through pipeline outlet, has pushed the need for LNG into a later phase of development versus our earlier plans," Noble Chairman and CEO Charles Davidson said in a statement.
Noble said it was aiming for first production in late 2017.
The shift to export more of the gas by pipeline instead of LNG made it less worthwhile for Woodside to invest in on existing terms, Coleman said in April.
At the same time, the company has been in dispute with the Israeli government over the tax treatment of a $1.2 billion downpayment on the project.
Investors applauded the move to abandon an investment in a region fraught with geopolitical risk and in a country that has never developed such a large gas field, sending Woodside's shares up as much as 1.4 percent on the decision.
"You would have wanted a very high hurdle rate for investment in Israel given the uncertainties that surround it," said Credit Suisse analyst Mark Samter.
Woodside left the door open to renegotiating a deal with the project stakeholders - Noble and Israeli firms Delek Drilling , Avner and Ratio Oil - if there were "material changes" to the investment conditions.
Leviathan, a large field with 540 billion cubic meters (19 trillion cubic feet) of gas reserves, had been seen as critical to Woodside's growth prospects amid delays in bringing on new production from assets closer to home, including the Browse and Greater Sunrise LNG projects.
Analysts said Woodside's buoyant share price, strong cash position and lack of near-term growth options suggested it would look for acquisitions.
"We do believe they'll be on the M&A path going forward. Clearly there is a hole in their growth profile at the moment," said UBS analyst Nik Burns.
There has been speculation Woodside may be interested in Oil Search, which has just started exporting LNG from Papua New Guinea, after Woodside recently missed out on buying a stake in some undeveloped gas fields in PNG.
However, Oil Search at A$13 billion ($12 billion) is trading on a fat price-to-earnings multiple of 20, compared to 13 for its peers, which would make paying a premium on top of that hard to justify, analysts and bankers said.
LNG opportunities in North America, and oil and gas exploration assets in Africa and the Middle East could attract Woodside, analysts said, based on recent comments by Coleman ruling out parts of South America and anywhere that's icy cold.
Investors expect the company to shed more light on its strategy at a full-day briefing on Thursday.
($1 = 1.0790 Australian Dollars) (Reporting by Sonali Paul; Editing by Richard Pullin)