Shell acquisition of BG jeopardizes Leviathan deal

BG Egyptian gas installation
BG Egyptian gas installation

Analysts warn that Israel's regulator must act fast to save the Leviathan partners $30 billion BG deal.

The acquisition by Royal Dutch Shell of British Gas (BG) jeopardizes the deal for exporting natural gas by the partners in the Leviathan reservoir to BG, according to Eco Energy CEO Amit Mor. "The geopolitical considerations of a giant company like Shell are different than those of BG," Mor says, adding that when Royal Shell considers the composition of its investment portfolio, it takes many factors into account, such as future business in Iran and other Arab countries, and says, "I'm not sure how much Royal Shell will want to be linked with Israel."

Mor was referring to the letter of intent signed last June by the Leviathan partners with BG, under which the Leviathan reservoir is due to supply 105 BCM of gas to the BG liquefaction facility in Idku, Egypt over 15 years. The value of the deal is estimated at $30 billion. This major deal, which involves the export of one sixth of the gas reserves in the reservoir, is what will make it possible to develop the reservoir.

BG has signed no final agreement with the Leviathan partners, due to regulatory problems, but now Royal Shell has entered the picture by acquiring BG for $70 billion, raising the question of whether such a deal can actually go through.

"It is important to keep in mind that Shell owned 20% of the shares in Woodside, and Woodside does not have good memories from Israel," comments former Israel National Gas Authority chief economist Miki Korner, currently an independent consultant in the field. He was referring to Australian company Woodside's negotiations to buy 25% of the Leviathan reservoir, which ended last year with Woodside abruptly leaving Israel. Korner says, "BG, which formerly operated in Israel, also left under rather unhappy circumstances, to say the least."

To this inauspicious background can be added the fact that Royal Shell itself did not mention Israel, Egypt, or the Middle East at all when it listed the countries on which it wishes to focus. According to the company's announcement, it plans to sell $30 billion of its assets and those of BG in order to focus on two main sectors: deep water gas reservoirs and liquefied natural gas (LNG) (the two companies currently jointly control 7.2% of the world's LNG).

Royal Shell wants to focus on Brazil and Australia, but also on North America, East and West Africa, and the North Sea, among other things. "I want to believe that the acquisition of BG will not affect the deal with Leviathan," Korner says, adding that the BG liquefaction facility has already been idle for a while, and that before selling its assets, it would be worthwhile for Royal Shell to sign the deal with Leviathan.

"Nevertheless, Israel must create a stable regulatory environment if it wants the deal with Leviathan to go through," says senior energy analyst Amir Foster. He agrees with Korner, saying that the value of the liquefaction facility in Egypt has been cut to almost nothing, and that Egypt is a significant part of BG's portfolio.

He also says that BG only recently signed an agreement with Egypt to develop and produce new gas fields for $4 billion. "I therefore believe that Royal Shell will want to retain the liquefaction facility," he says, but warns, "The ball is now in the Israeli government's court. If the government does not act quickly to solve the regulatory problems here, there is no chance that the deal will go through."

Published by Globes [online], Israel business news - - on April 15, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

BG Egyptian gas installation
BG Egyptian gas installation
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