Nothing is final, no decision has been taken, but the signs are growing that the brief romance with the Australians is speedily reaching a heart-rending end. On second thoughts, not even that. Beyond the fact that few Israelis will shed a tear if the Australians say goodbye tomorrow morning and return to their distant country, the cancellation of the Woodside Petroleum Ltd. (ASX: WPL) deal makes it unnecessary for Prime Minister Benjamin Netanyahu and Minister of Energy and Water Resources Silvan Shalom to make an unpopular decision. Even the local natural gas companies will manage to get over the divorce. Delek Group Ltd. (TASE: DLEKG) and Ratio Oil Exploration (1992) LP (TASE:RATI.L) have not concealed their disappointment at the price that Woodside agreed to pay for rights in Leviathan. The new argument over the terms of payment, which are unrelated to the question of exports, only make the atmosphere uglier.
But in the long term, the departure of Woodside will be bad news for Israel's energy market.
Woodside is Australia's leading developer of natural gas export infrastructures, and one of the leading companies in the world in this field. Its expertise in the construction of liquefied natural gas (LNG) facilities is irreplaceable. These are projects with a price tag that begins at $10 billion. A few giant companies in the world know how to build such facilities, and none of them wanted to come to Israel before, and they certainly won't want to come in the future if Woodside quits. The possibility that an LNG facility will ever be built in Israel will become science fiction. In the short term, we're talking about the loss of a huge investment in the economy and thousands of jobs which the venture would have created. In the longer term, we're talking about a serious blow to the Israeli economy's international reputation, which has not yet recovered from the games of the Sheshinski Committee and the flight of BG Group plc (LSE; NYSE: BG).
On the other hand, it is quite possible that an LNG facility was much too much for Israel to handle from the outset. As Gabi Golan, the Prime Minister's Office observer on the Tzemach Committee, said, Israel has no suitable site for the construction of such a facility. The idea of building a floating facility has not yet been shown to be technologically feasible, and the possibility of building a facility in Cyprus does not appear to be practical. And on the subject of the Tzemach Committee, cancellation of the LNG facility wrecks the basis of the committee's calculations. The committee's transcripts published last week reveal that the amount of gas for export was calculated according to the minimum amount that would justify the construction of an LNG facility.
Without Woodside, everything is reopened. This does not mean that the dream of gas exports has completely vanished. It is quite possible that Israel will export gas via a pipeline to Jordan, and maybe even to Turkey and Egypt. These are far more modest ventures than the idea of an LNG facility, but will make a fast return on investment. In addition, the government strongly supports gas exports to neighboring countries, because of the geopolitical advantages. The only problem is the instability of the political leadership on the other side. With Turkish Prime Minister Recep Tayyip Erdogan, Jordanian King Abdullah II, and Egyptian President Mohamed Morsi, we will miss the Australians.
Published by Globes [online], Israel business news - www.globes-online.com - on June 10, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013