Israel will begin selling natural gas to Egypt in 2019, according to companies involved in Israel’s largest gas field, which detailed their export plans after buying a $500m stake in a pipeline that runs to its Arab neighbour. A US – Israel consortium, Delek Noble energy, leading the development of Israel’s offshore gas reserves announced the…
Israel will begin selling natural gas to Egypt in 2019, according to companies involved in Israel’s largest gas field, which detailed their export plans after buying a $500m stake in a pipeline that runs to its Arab neighbour. A US – Israel consortium, Delek Noble energy, leading the development of Israel’s offshore gas reserves announced the deal on 27th September.
Background
The Leviathan gas field is a large natural gas field located in the Mediterranean Sea off the coast of Israel. The gas field is located roughly 130 km west of Haifa in waters, 1500 m deep in the Levantine basin, a rich hydrocarbon area in one of the world’s largest offshore gas finds of the past decade.
The Tamar gas field is a natural field in the Mediterranean Sea off the coast of Israel. The field is located in Israel’s exclusive economic zone, roughly 80 kilometres (50 mi) west of Haifa in waters 1,700 metres (5,600 ft) deep. The Tamar field is considered to have proven reserves of 200 billion cubic metres (7.1 trillion cubic feet) of natural gas, while the adjoining Tamar South field has 23 billion cubic metres (810 billion cubic feet).
Noble Energy is a Houston based oil and gas company that has signed an agreement to sell significant quantities of natural gas from the Leviathan and Tamar oil fields of Israel to Dophinus Holdings to supply gas in Egypt for a value of up to US 14 billion.
Analysis
In a crucial step toward starting natural gas exports to Egypt, Israel’s Delek Drilling LP and the Houston based Noble Energy Inc together with Egyptian East Gas Company, signed a deal to buy 39% stake in the Eastern Mediterranean Gas Co (EMG).
Delek and Noble Energy will receive exclusive rights to operate EMG’S disused 90-kilometre pipeline that runs between Al Arish in Sinai Egypt and Ashkelon in Southern Israel. The EMG pipeline was originally built to export Egyptian gas to Israel. The pipeline will have to be reversed to enable gas to flow from Isreal to Egypt which is a technical challenge.
At its height, EMG had been worth around $3 billion. But a series of terror attacks on the pipe halted deliveries and finally in 2012, the Egyptian government, then controlled by the Muslim Brotherhood, cancelled the contract with Israel.
The companies will pay $518n million for the stake with Delek and Noble paying $185 million each and the balance by East Gas. This agreement marks an important step toward fulfilling a $15 billion-decade long deal, signed in February with Egypt’s Dolphinus that will see Noble Energy and Derek Drilling supply 64 cubic meters of natural gas to Egypt over 10 years from Tamar and Leviathan gas reservoirs.
The shares of Delek Drilling rose 3.1% to 10.79 shekels ($2.99) on the Tel Aviv Stock Exchange. Nobel shares were up 1% at $31.41 midday local time in New York. The deal marks a major breakthrough for Delek, Noble and their partners, who have been searching for a major export market for their gas. They already sell gas to Jordan but that market is small and other big ones, like Turkey and Europe, remain for now distant prospects due to political or logical obstacles.
Egypt’s oil ministry welcomed the agreement, which disqualifies the legal obstacles that were impeding the export of gas from Israel. Also, Egypt has idle liquefaction plants that would make it suitable for a regional hub. For Israel, using existing infrastructure to export via Egypt saves it the cost of building its own facilities. “This is a historic transaction, that renders Egypt a regional energy centre and positions it in line with significant global energy centres,” said Delek Drilling CEO Yossi Abu.
He added that the purchase of pipeline is a significant milestone for the Israeli gas market since the discoveries of Tamar and Leviathan reservoirs. “The Leviathan reservoir is becoming the Mediterranean basin’s primary energy anchor, with customers in Israel, Egypt and Jordan,” he said. Israel has limited natural resources but in the last few years it has discovered major gas fields off its coast and is building the infrastructure needed to tap them.
Egypt and Israel have grown closer since President Mr Abdel Fatteh El- Sisi took power in a 2013 coup that overthrew an elected Islamist president. They have co-operated on security issues including defeating Isis militants in the Sinai Peninsula near the border with Gaza and Israel.
Counterpoint
This deal has come under criticism within Egypt, where opponents have questioned the purchase of gas from Israel at a time the country is meant to have cut down its dependence on foreign energy supplies.
In Israel, some politicians have demanded that it held on to the gas from Tamar and Leviathan reservoirs for domestic use.
Pressure on the Israeli market was kicked up a notch last week with the announcement that Cyprus and Egypt had signed an agreement to construct a pipeline to Egypt’s liquefied natural gas (LNG) facilities, paving the way for Cypriot gas exports – and competition for Israel.
Assessment
Our assessment is that despite signing a peace treaty in 1972, political events in the Middle East prevented Israel and Egypt from establishing a more engaging relationship. This has contributed to delay the development of energy co-operation. We believe that connections between Israel and Egypt are good militarily and intelligence-wise, and energy can only add to the understanding and business between the countries.
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