* Adds private firm to region dominated by national players
* Woodside wants to use LNG expertise outside home market
* Production target is 2016 for Israeli gas market
By Jane Wardell and Ari Rabinovitch
SYDNEY/JERUSALEM, Dec 3 Australia's Woodside
Petroleum said it would buy a 30 percent stake in Israel's
Leviathan natural gas field, dealing a blow to Gazprom's
ambitions to cement its position as Europe's dominant supplier
and expand in the liquefied natural gas market.
Woodside, Australia's biggest oil and gas firm,
will take a 30 percent stake in Leviathan in a deal that could
be worth $2.5 billion and adds a major player to the LNG market
in Europe, the Middle East and Africa.
Gazprom, Russia's gas export monopoly, which
supplies around a third of Europe's natural gas demand, had also
bid for the project, which is expected to eventually export LNG
to Europe and Asia. Other bidders included France's Total
and China's National Offshore Oil Corporation
, sources said.
Initial production for Israel's domestic gas market is
targeted for 2016, Woodside said
Analysts say the project could export LNG overseas by the
end of the decade and that it is ideally situated to serve both
Europe's and Asia's growing LNG markets due to its location near
the Suez Canal and major gas markets such as Italy.
"The Leviathan partners wanted someone with expertise in
upstream and LNG marketing. This is an area where Gazprom has
some but limited experience," said Catherine Hunter, energy
analyst at IHS Global Insight.
Woodside's entry into the region will also add a private
player to a market largely dominated by national suppliers such
as Russia's Gazprom, Norway's Statoil and Algeria's
"Strategic issues are likely to have featured in this
decision, given that Gazprom is already Europe's primary gas
supplier. It may have seemed more attractive to award the stake
to a new entrant which also has marketing expertise in Asia,"
The Leviathan gas field is located 130 km (80 miles) off the
Mediterranean port of Haifa and has estimated gas reserves of 17
trillion cubic feet (481 billion cubic metres), which is
equivalent to almost a year's worth of European gas demand and
enough to cover Israel's gas needs for generations.
Until now, Texas-based Noble Energy was the main
foreign operator in Israel's energy market.
"The entry of Woodside will bring additional international
diversity to the Eastern Mediterranean area," Noble Chairman and
CEO Charles Davidson said in a statement.
Leviathan's reserves could redraw the global gas supply map,
and the Israeli government is keen to attract energy majors to
"We intend to continue to encourage the entry of giant
international corporations into Israel's energy industry in
order to realize the potential buried off the country's shores,"
Israeli Energy Minister Uzi Landau said in a statement.
"The acquisition price is attractive compared with recent
similar transactions, although geopolitical risks are higher,"
Bernstein Research said in a note.
The Leviathan gas field is not the only big recent finding
in the eastern Mediterranean. Some analysts estimate total
offshore gas reserves in the region are in excess of 100 tcf,
prompting interest in exploration in countries including Egypt
Despite the interest, experts say that developing the
region's gas fields will be complicated because of border
disputes and political conflicts.
WOODSIDE WANTS CHEAPER ASSETS
For Woodside, the deal offers a welcome alternative to its
domestic LNG projects, which have been dogged by spiralling
Australia has some of the highest marginal costs in the
world at around $10 per million British thermal units (mmBtu).
"With rampant cost inflation in the face of an increasingly
price-sensitive customer base, these large-scale, expensive
projects look cumbersome and outdated in the context of
intensifying global competition," French Bank Societe Generale
said in a recent research note.
Woodside Chief Executive Peter Coleman said the Leviathan
deal was a significant step towards realising an ambition to
secure world-class growth opportunities.
In May, Woodside was one of 15 companies, including majors
such as Total, to bid on nine offshore gas blocks in Cyprus,
which is jointly developing its gas exploration with Israel.
The agreement also allows Woodside to participate in further
exploration opportunities in the 349-Rachel and 350-Amit Israeli
offshore petroleum licences, the company said.
DEAL WORTH UP TO $2.5 BILLION
Ratio Oil Exploration, a partner in the U.S.-Israeli
consortium currently developing the field, told the Tel Aviv
Stock Exchange the deal with Woodside could be worth up to about
"It's tough to overstate the significant effects this move
will have on the Israeli energy sector and the economy in
general," Ratio Chief Executive Yigal Landau said in a
In the deal, Noble Energy, which will remain the upstream
operator, will sell 9.66 percent of its 39.66 percent share in
the field. Delek Drilling and Avner Oil Exploration
will each give up 7.67 percent of their 22.67 percent
stakes. Ratio will sell 5 percent of its 15 percent