Tamar a rare success as Israel struggles to reap gas bonanza

* Natural gas drama has hounded Netanyahu for six years

* Delek, Noble will invest $10 billion once outline approved

* Tamar expansion will include exports to Egypt

By Ari Rabinovitch

TAMAR PLATFORM, East Mediterranean, Aug 4 (Reuters) - The Tamar natural gas platform, towering 300 feet above the Mediterranean, is a rare success story in Israel's fledgling energy sector - a state-of-the-art facility that has already saved billions of dollars in electricity costs.

But as the only terminal built since the gas bonanza began in this part of the Mediterranean six years ago, it is also a reminder of the Levant's unrealised potential.

When Benjamin Netanyahu was elected in early 2009, Israelis were celebrating the discovery of Tamar, a gas field that promised energy independence, with reserves worth more than 130 billion shekels ($34 billion).

It was the first of a series of deep-water discoveries in the region, including the twice-as-large Leviathan field, that have since been bogged down in political and regulatory in-fighting over who should control the gas. Texas-based Noble Energy and Israel's Delek Group (Other OTC: DGRLY - news) had bought into a number of licences, including Tamar and Leviathan.

Once the discoveries started coming, Netanyahu began trying to claw back a stake. With the reluctant agreement of the private sector, he raised tax rates in 2011. Two years later he limited exports to 40 percent of total reserves.

But things exploded last December when Israel's antitrust regulator deemed the Delek-Noble partnership a monopoly that would have to sell off assets.

In response, the companies froze their investments. Other operators have since balked at developing smaller fields and multi-year export deals with Egypt and Jordan are on hold.

Netanyahu negotiated an agreement with Noble and Delek that would leave Leviathan in their hands while putting stakes in Tamar and two smaller fields up for sale. But he has been unable to get it approved by parliament, with many lawmakers demanding a tougher government line.

Delek Drilling Chief Executive Yossi Abu, speaking to Reuters on the Tamar platform, said only once the deal is finalised will exploration firms resume drilling.

"Every day that passes Israel is losing revenue and investments and is not enjoying the geopolitical benefits of the discoveries," he said. "Once this outline is approved, it will allow us to invest close to $10 billion to expand Tamar and develop Leviathan."

EXPANSION

The Tamar platform is a 20-minute helicopter ride southwest from Tel Aviv. A 150-km pipeline connects it to the actual field farther offshore. It has two, and sometimes three or four, of everything - in-flow pipes, generators, heaters - to ensure uninterrupted production in case something breaks.

"If we shut down, the lights start flickering in Israel," one of the engineers said, only half joking as most of the country's largest power stations now run on gas.

Since coming online in 2013, replacing more expensive diesel and fuel oil, Tamar has a near-perfect run rate of 99.6 percent.

Abu said the planned expansion would open Tamar for exports, with an underwater pipeline feeding a liquefied natural gas (LNG) plant in Damietta, Egypt, run by Union Fenosa Gas - a joint venture between Spain's Gas Natural (AMEX: EGAS - news) and Italy's Eni (NYSE: E - news) .

Leviathan is set to begin production in 2019 at the earliest. Abu said the first phase of development includes preliminary export agreements reached with a second Egyptian LNG facility run by BG Group (LSE: BG.L - news) and the national Jordanian electricity company.

But much hinges on whether Netanyahu can get legislation passed in parliament that doesn't turn big business away. (Editing by David Evans)