* Australia's Woodside buys 25 pct stake in Leviathan
* Domestic production seen by 2017, exports to follow
* Woodside is an LNG expert, but pipeline exports also an
* Leviathan field has enough gas to supply Europe for over a
* Oil also possible, drilling expected in 2015
LONDON, Feb 7 Israel has taken a step closer to
becoming a natural gas exporter after Australia's Woodside
Petroleum Ltd signed a deal to take a 25 percent stake
in the huge East Mediterranean Leviathan gas field.
The Australian company, considered a leader in the booming
liquefied natural gas (LNG) sector, signed a preliminary
agreement on Thursday to buy a quarter of the Leviathan field
off the coast of Israel for up to $2.55 billion.
Leviathan is estimated to hold about 19 trillion cubic feet
(540 billion cubic metres) of natural gas, enough to supply all
of Europe for over a year.
The field is being developed by U.S.-based Noble Energy Corp
, which will remain the project's lead partner with a 30
percent stake, while the other groups involved, Israel's Delek
Group, Avner Oil Exploration and Ratio Oil
Exploration, will each sell one-quarter of their
stakes to Woodside.
"Woodside is one of the leading companies in the world in
the ... development of LNG facilities. The company brings with
it rich experience ... and will be a significant boost for the
Leviathan partnership," Delek Drilling and Avner said in a
Woodside sees the Leviathan project as an important part of
its strategy to diversify outside of Australia. It is also
considering projects in Myanmar and Ireland.
Despite the prospect of lucrative gas exports, analysts said
Leviathan would initially serve Israel's domestic market.
"Leviathan will be initially developed as a domestic gas
project with gross production of 800 million cubic feet per day
and first gas expected in 2017," Bernstein research said on
Friday in a research note.
Once domestic supplies are up and running, Bernstein said
that Woodside's involvement in the project meant that exports in
form of LNG would become more likely.
"There will be up to 9 trillion cubic feet of gas exports.
Although it remains uncertain whether gas exports will be as LNG
or pipeline, Woodside's involvement increases the probability of
a floating LNG scheme."
Analysts said the Leviathan field may also hold significant
oil reserves of up to 720 million barrels, and that drilling was
expected to begin in 2015.
PIPELINE OR LNG?
The biggest question regarding gas exports is whether they
will come in the form of a pipeline or LNG terminal.
Israel has the option to build a pipeline to serve Europe's
large but stagnating gas market or to invest in a more expensive
LNG export terminal which would allow shipments to Asia's
markets, where prices are currently twice as high as in Europe.
Although an LNG terminal would allow access to global
markets, the cheaper option of a pipeline to Turkey and the
Palestinian Authority has recently gained traction.
"From a Woodside perspective it's clearly not good news,"
said Macquarie Equities analyst Adrian Wood.
Critics of the pipeline option point out, however, that
unresolved maritime claims in the East Mediterranean will make
it difficult to get the inter-governmental deals in place that
would allow the laying of a pipeline from Israel to Turkey.
Another option for the project would be to build a joint LNG
terminal with Cyprus, which has also found large untapped gas
reserves, and which could be jointly developed with Israel as
they are close to the Leviathan field, although analysts here
point out that Israel is reluctant to export its gas through a
Negotiations between Leviathan's partners and Woodside
dragged on for more than a year as Israel's supreme court
debated whether to allow natural gas exports, gas field studies
were completed and options on developing the gas were debated.
The Israeli high court ultimately allowed exports of up to
40 percent of produced natural gas.
The proposed new deal, which Woodside aims to finalise in
March, would also give Woodside a royalty on commercial oil
production. That includes an up-front payment of $850 million.
Analysts say there is currently a global race to develop new
gas fields as soon as possible before the vast new supplies pull
down prices and threaten return of investments.
The United States is expected to begin LNG exports of its
vast shale gas reserves in 2015, and Australia is also trying to
become a top LNG exporter this decade, while Mozambique and East
Africa also hope to develop their newly found huge offshore gas
reserves within the coming years.