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* Leviathan costs could top $6 bln in initial stage
* Partners searching for first major signed contract
* BG needs Leviathan gas for Egypt plant, analyst says
By Tova Cohen and Ari Rabinovitch
TEL AVIV, Sept 15 (Reuters) - The group developing Israel'sgiant Leviathan gas field is running out of time to clinchbinding major supply deals with Egypt and Jordan to ensuregovernment support for developing the resource before a Novemberdeadline.
The field, which promises to help build Israel's regionalties through large-scale energy exports, has lost one of itsbiggest potential customers, Turkey, in political fallout fromthe 50-day Gaza war.
And talks with companies, such as Britain's BG Group which wants to bring in Israeli gas to feed its Egyptianliquefied natural gas (LNG) export plants, hinge on difficultcommercial negotiations.
Israel has set a November deadline for Leviathan developersNoble Energy of Texas and Israel's Delek Group to submit their plans for getting the field to theproduction stage.
Failure to submit by the deadline a development plan thatincludes long-term gas sales with mayor buyers, opens the doorto production delays beyond its currently envisaged 2018, when araft of new export projects around the world threatens todepress profits.
Leviathan's estimated gas reserves of 622 billion cubicmetres (bcm) are far too large for Israel's domestic use, makingexport deals critical to the project's viability, with firstphase development costs estimated at $6 billion.
"To raise the funding needed for Leviathan I think theywould need to get a big anchor customer like BG," said EranYunger, senior analyst at brokerage Meitav Dash.
"If that doesn't happen this year, the field won't bedeveloped according to the current schedule."
In the past six months, renewed tensions with Turkey, a lackof progress on teaming up with a Cypriot gas export plant andtax disputes with Australian LNG specialist Woodside have jeopardised Israel's access to the world's biggest gasmarkets in Europe and Asia.
Plans to export output from Leviathan on LNG tankers tolucrative Asian countries backfired in March when Woodsidecalled off buying a quarter stake in Leviathan.
REGIONAL AMBITIONS
Focus had subsequently shifted to regional relationships,especially a proposed 8-12 bcm a year pipeline between Leviathanand Turkey, a major energy consumer that has links into Europeand sits 470 km north of the gas field.
Turkish opposition to Israel's treatment of Palestinianstorpedoed the initiative put together by Leviathan and privatesector buyers in Turkey, including energy joint venture companyEnerjisa, half owned by German utility E.ON.
Leviathan partners Noble and Delek are confident that thecontracts are moving in the right direction and are sticking tothe 2018 timeline, officials have said over the past few weeks.
News early in September of a preliminary agreement to supplyJordan's national electricity company with gas for 15 years,which could be worth $15 billion, was a step in the rightdirection. But it still falls short of a concrete supply dealthat would help underpin the project.
Only the Palestinian Authority has so far committed tobuying gas, agreeing a 20-year deal worth $1.2 billion
The Leviathan group did reach a tentative agreement with BG in June that would involve exporting 7 bcm of gas a year over 15years to an LNG export plant in Idku, Egypt. It remains stuck atthe non-binding stage while BG assesses the multi-billion dollarinvestment, while at the same time developing deep water fieldsoff the coast of Egypt.
BG is also considering a parallel option to link up itsEgyptian LNG plant with British oil major BP's NorthAlexandria offshore gas development, using existinginfrastructure by 2016, which may provide a quicker and cheaperroute to reviving exports, industry sources said.
Negotiations on terms with the Leviathan partners willprobably be the deciding factor.
"BG needs Leviathan and Leviathan needs BG, especially aswith an Egyptian deal Leviathan would have enough offtakeagreements for the first phase of development," said AmirFoster, a Tel Aviv-based oil and gas industry consultant, whoexpects the agreement to be finalised soon.
"The (Idku) LNG facility for BG Group is like a sunk costfor them right now, and the investment they would need to makefor a pipeline is not so big (as) to make it uneconomic," hesaid.
Yet BG is coming under growing pressure to cut costs, whileat the same time changes in global gas markets threaten to erodeLNG sales profits as rival projects in Australia and the UnitedStates near start-up.
Delek and Noble declined to comment for this article. (Writing by Oleg Vukmanovic; editing by Keiron Henderson)
