Shell said to mull buying Israel, Cyprus gas for Egypt plant

Yaacov Benmeleh and Rakteem Katakey 8/20/2017

TEL AVIV (Bloomberg) -- Royal Dutch Shell Plc is seeking creative solutions to bring gas from Israel and Cyprus to market, a step that could help turn the Mediterranean region into a major gas-producing hub.

Shell is in talks to buy natural gas from Israel’s Leviathan field, combine it with output from Cyprus’s Aphrodite field, in which it owns a 35% stake, and pump it to a liquefied natural gas plant in Egypt, according to people with knowledge of the matter. Talks are at an early stage and some of Aphrodite’s gas could be sold locally, said the people, who asked not to be named because the discussions are private.

Combining output from the fields, which share some major investors, could potentially improve the economics of the projects. Leviathan’s partners, led by Noble Energy Inc. and  Delek Drilling LP, are looking at various shipment options as they face an estimated development cost of $3.75 billion. The partners would have to seek further funds to increase the field’s capacity if they do the deal with Shell, one of the people said.

Israeli and Cypriot gas finds, together with the giant Zohr field off Egypt and reservoirs off Lebanon, could create a center of gas production right on Europe’s doorstep. While that has given a handful of nations access to vast resources, they’re still trying to figure out the best way to use the fuel in a region fraught with political enmity.

Ownership breakdown

BG Group Plc had signed a non-binding, 15-year deal in 2014 to buy gas from Leviathan, but the accord was stalled by regulatory issues in Israel and by Shell’s purchase of BG. Shell is now considering buying about 5 Bcm of gas a year from the field, one of the people said. 

Delek owns a 45.3% stake in Leviathan -- set to start production in 2019 -- while Noble holds 39.7% and Ratio Oil Exploration 1992 LP owns the remainder. Noble also has 35% of Aphrodite and Delek 30%, along with Shell. The two sites lie just 20 mi apart.

Shares of Ratio were up 5.1% on the news, their largest move since May, to 2.4 shekels at the close of trading Sunday in Tel Aviv. Delek Drilling shares were up 3.9% to 13.09 shekels, also the largest move since May, while Delek Group shares rose the most since September, 4.9%, to 691.40 shekels.

A spokeswoman for The Hague-based Shell declined to comment. Representatives of Leviathan partners also declined to comment.

A U.S.-based spokeswoman for Noble said the company remains in negotiations to supply natural gas to LNG plants in Egypt and to the Egyptian market, which together have enough demand to accommodate Leviathan, Aphrodite and other regional developments, she said.

Deliveries to Egypt would be piped to Shell’s Idku LNG plant on the country’s Mediterranean coast, the people said. Egypt was a net exporter of LNG until 2014, when declining output and power shortages resulting from political upheaval forced it to divert fuel for its own use. 

Another option being considered to get Leviathan’s gas to Egypt is a pipeline through Jordan, people familiar with the matter said earlier this month. Whatever route is chosen, the Israeli government will be keen to ink a deal as a way to strengthen economic ties in the politically unstable region.

The Cypriot government is also looking to develop its gas industry. Building floating LNG terminals to evacuate the fuel may be an option for the country if regional politics make pipelines non-viable, Salih Yilmaz, an analyst at Bloomberg Intelligence, wrote in an Aug. 16 report. Still, pipelines would be cheaper, he said.


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