Israel-Egypt $15 Billion Deal Boosts Energy Hub Prospects

Refinery
Tamar, seen here, and Leviathan are among the biggest natural gas finds in recent years and have provided Israel with enough fuel for decades of energy self-sufficiency and export

A $15 billion deal to export Israeli gas to Egypt is moving forward after months of talks, bringing the Jewish state a step closer to becoming an energy exporter to the most populous Arab country.

Noble Energy Inc. and Delek Drilling-LP said they plan to supply around 64 billion cubic meters of natural gas over 10 years to Egypt’s Dolphinus Holdings Ltd. from Israel’s Tamar and Leviathan reservoirs. Shares of Israeli gas companies soared the most in nine years on Monday. The deal needs regulatory and governmental approvals in Egypt and Israel.

The move could add an economic plum to a relationship that has focused on security since the two countries signed a peace accord that changed the face of Middle Eastern politics nearly four decades ago. Tavy Rosner, an analyst at London-based Barclays Plc, said he expects more agreements to follow, including the sale of Israeli gas to Royal Dutch Shell Plc, which operates a liquefied natural gas plant in northern Egypt.

“This is the first time since signing the peace treaties in the Middle East that substantial export deals are struck between the countries,” Israel Energy Minister Yuval Steinitz said. The contract will “position Israel as a central player in the regional energy sector.”
 The deal with Egypt follows an agreement to sell gas to Jordan in 2016. Egypt, for its part, is trying to leverage the discovery of the giant Zohr field to attract investment and foreign currency. Egypt has idle liquefaction plants such as Shell’s, making it a suitable location for a regional hub.

“This paves the way for further deals and cements Egypt as a regional energy hub,” Yossi Abu, Delek Drilling’s chief executive officer, said in a phone interview. “This will be an engine for both the Egyptian and Israeli economies alike. We’re proud to be part of this moment.”gas record

Security Risks
Questions remain, including how Noble and Delek will transmit the gas to Egypt in a region rife with security risks. Egypt used to supply Israel with gas but the pipeline was sabotaged repeatedly by Islamist militants in the Sinai Desert.

Cairo had frozen talks on a gas deal after an international arbitration court ruled Egyptian companies must compensate Israeli electricity providers for that past deal. EMG, which operates the pipeline that used to bring Egyptian gas to Israel, also is seeking damages.

Executives at Dolphinus couldn’t immediately be reached for comment. Egypt’s oil ministry said it will take decisions that help it achieve its goal of becoming a regional gas hub, and that Egypt is keen to settle any disputes.

Egypt’s oil ministry said in an emailed statement that receiving Israeli gas is one possible solution to the arbitration dispute between Egyptian and Israeli companies.

“Egypt is proceeding with its plan to achieve self-sufficiency in natural gas by the year-end and a surplus in 2019, and moving ahead with its strategy to become a regional hub for energy,” the ministry said. “This includes receiving gas from countries in the East Mediterranean, including Israel and Cyprus.”

Cyprus Deal
Cyprus’s energy minister said Tuesday the country is close to an agreement to sell natural gas to Egypt from its Aphrodite field.

The area from Cyprus to Lebanon and Egypt may contain additional gas riches, and countries in the region are eager to develop export plans. The United States Geological Survey estimates the area could hold more than 340 trillion cubic feet of gas, more than U.S. proven reserves.

The emerging wealth is also threatening to spark conflict. Israel and Lebanon have traded threats in recent weeks as the two countries disagree about where their border should be.

It’s not clear how the new deal fits into Egypt’s plans to export gas from its giant Zohr field. Italy’s Eni aims to pump 2.7 billion cubic feet of gas per day from Zohr by end-2019. Delek has said that even at full production Zohr won’t be able to keep up with rising demand.
Delek said it will begin talks with EMG over use of its pipeline. Another possibility could be to use an existing pipeline that connects the Israeli transmission system with the Jordanian one, they said.