Just two years after natural gas supplies from Egypt to Israel ceased flowing amid regional instability, the resource may soon begin gushing in the opposite direction.
The Tamar reservoir partners signed on Monday a letter of intent with Spanish firm Union Fenosa Gas to supply natural gas to the company’s existing gas liquefaction facilities in Egypt.
Assuming the letter of intent progresses to a full fledged agreement, the parties would take part in a 15-year contract with a total gross sale quantity of up to 71 billion cu.m. of natural gas – or 13 million cu.m. per day during the time period – a statement from Noble Energy, the largest stakeholder in the reservoir, said.
Beginning in 2008, the East Mediterranean Gas Company supplied Israel with about 40 percent of its natural gas supply, from Egypt, until saboteurs began thwarting the flow with pipeline explosions in the northern Sinai.
Following 14 months of such attacks, the Egyptian government formally terminated the agreement between East Mediterranean Gas Company and Israel in April 2012.
Due to the cessation in Egyptian gas supply and the several month gap between the depletion of Israel’s own Mari-B reservoir and the start of Tamar, the country relied heavily on much more polluting, expensive fuels during that time period. Tamar began providing gas to the domestic Israeli market in March 2013.
Houston-based Noble Energy holds 36% of the 282 billion cu.m. Tamar basin. Delek Drilling and Avner Oil Exploration – both subsidiaries of the Delek Group – each own 15.625%, while Isramco owns 28.75% and Dor Gas owns 4%.
Union Fenosa Gas holds 80% of its subsidiary Spanish Egyptian Gas Company, which is responsible for operating the Egyptian plant in Damietta, located near the Suez Canal.
The remaining 20% of the company belongs to the Egyptian State Companies, and Egyptian Natural Gas Holding.
The plant, which produces liquefied natural gas for export, has a liquefaction processing rate capacity of 7.56 billion cu.m. per year, data from Union Fenosa Gas said.
Production at the Damietta plant began in late November 2004, with its first shipment of LNG heading to a regasification plant in Spain in January 2005, the Spanish company said.
The LNG plant stopped operating in the past few years, however, due to a lack of gas supply, after the Egyptian government began keeping natural gas at home in summer 2012 due to domestic fuel shortages, according to Reuters.
In April 2013, Union Fenosa Gas filed a complaint to the International Chamber of Commerce, claiming that the Egyptian state partners had failed to comply with contracts, saying that the partners are obliged to pay for contracted LNG capacity even when the plant is not operating, a Reuters report said.
This latest letter of intent follows a $500 million deal in February that the Tamar partners signed with the Jordanian firms Arab Potash and Jordan Bromine to provide 1.8 billion cu.m. of gas to the companies over 15 years, beginning in 2016.
Meanwhile, the partners of the larger neighboring Leviathan reservoir, which is scheduled to begin flowing in 2017, signed a $1.2b. sale agreement with a Palestinian company in January.
According to that agreement, the Palestine Power Generation Company will buy around 4.75 billion cu.m.
of gas for a period of 20 years, to fuel a future power plant in Jenin with a 200-megawatt capacity.
Noble owns 39.66% of Leviathan – which contains about 535 billion cu.m. of gas – while Delek Drilling and Avner Oil each own 22.67% and Ratio Oil Exploration holds 15%.
The price for sales to the liquefaction facility in Egypt will be similar to the contract prices in the other regional natural gas sales and purchase agreements, based on a linkage to Brent crude oil price index, Noble Energy said.
Under the February agreement with the Jordanian companies, the partners determined that gas sales would be based on a starting price of at least $6.50 per thousand cubic feet of natural gas, also linked to the Brent index.
There, Noble is also charging about $0.2 per thousand cubic feet for marketing and sales services for the transfer of gas to Jordan.
“This [letter of intent] with Union Fenosa Gas represents a major milestone for our Tamar asset and is indicative of the strong regional demand for natural gas,” said Keith Elliott, Noble Energy’s senior vice president.
“The associated expansion of the Tamar field facilities, subject to final investment decision of the Tamar partners, will not only enable substantial regional exports, but it will also increase the capacity for natural gas deliveries to Israel’s domestic market,” he said.
“Building on the recent agreements with the Palestinian Power Generation Company, as well as the Arab Potash and Jordan Bromine Companies, this agreement continues to demonstrate our ability to accelerate value and strengthen economic growth for stakeholders across the Eastern Mediterranean region,” Elliott said.