Eastern Mediterranean Gas: Egyptian pipeline not part of Tamar partners, Dolphinus gas deal

EMG lawyer says costs of such an agreement would be ‘unrealistic.’

March 23, 2015 03:42
4 minute read.
Israel's natural gas

Israel's natural gas. (photo credit: MINISTRY OF NATIONAL INFRASTRUCTURES)

Following last week’s announcement that Israel’s Tamar reservoir would soon export gas to Egypt through the Eastern Mediterranean Gas Company’s Arish-Ashkelon pipeline, a lawyer for EMG is claiming the company is not party to any such agreement.

“EMG was surprised, once again, to read in the press about an agreement assuming the use of its pipeline for ‘reverse flow’ of gas between the Israeli Tamar Reservoir partners and Dolphinus Holdings Limited,” Nir Sever, a lawyer for M. Firon Advocates & Notaries, wrote to the shareholders of the Tamar reservoir on Sunday.

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Sever was referring to an approximately NIS 4.8 billion ($1.2b.) deal signed Wednesday, stipulating that the 282-billion-cubic-meter Tamar reservoir will supply gas to the Egypt’s Dolphinus for seven years – including a minimum of 5 bcm. during the first three years of the contract.

While the Tamar partners said the gas transfer would occur through the EMG pipeline, Sever emphasized on Sunday that EMG was “not a party to the reported deal and was not included in such negotiations,” adding that EMG and Dolphinus have not engaged in any relevant discussions.

Gas from the Tamar field, located about 80 km. west of Haifa, began flowing into the Israeli domestic market in March 2013. Noble Energy holds 36 percent of the basin, Delek Group subsidiaries Delek Drilling and Avner Oil each own 15.625%, while Isramco owns 28.75% and Dor Gas owns 4%.

The agreement looks to renew the EMG pipeline, which for several years carried gas from Egypt to Israel. In 2008, EMG began supplying Israel with about 40% of its natural gas provisions, until saboteurs began thwarting the flow through Sinai pipeline explosions.

Following 14 months of such attacks, the Egyptian government formally terminated the agreement between EMG and Israel in April 2012.

Sever said he wrote Sunday’s letter directly on behalf of EMG, the company that M. Firon & Co. has represented for the past nine years.

EMG is an Egyptian company made up of a variety of shareholders from different countries – 10% by Egyptian Natural Gas Holding, 25% by the Thai state-owned PTT, 12% by EMI-EGI LP (a partnership between the European Middleware Initiative and the European Grid Infrastructure), 28% by Mediterranean Gas Pipeline Company (owned by the Azerbaijani Evsen Group of Companies) and 25% collectively by the Israeli firm Merhav, the Ampal-American Israel Corporation and a limited partnership among Ampal and institutional investors.

“We represent EMG and the letter was sent by us,” Sever told The Jerusalem Post. “The letter in hand was issue by M. Firon at the instruction of EMG.”

Completely unrelated to this letter, M. Firon also represents some of the shareholders individually in several international arbitrations, jointly with Freshfields, Bruckhaus & Deringer, a spokesman for his firm explained.

In addition to stressing EMG’s lack of involvement in the agreement signed between the Tamar partners and Dolphinus, Sever argued that the upfront costs associated with such a deal would be “unrealistic for a pipeline that has been out of operation for several years.”

EMG also would consider the transport of the discussed quantities of gas to be uneconomical for the time period described, he added.

A prerequisite to the fruition of a reverse flow deal on the EMG pipeline would be the approval of the Egyptian government; the creation of added value for Egypt; and the resolution of pending international arbitration cases between EMG and its shareholders and Egypt, Sever wrote.

“The positions taken by Egypt in those cases to date, as well as existing Egyptian law restrictions, preclude, at present, any agreement by EMG to contract use of its pipeline for reverse flow on any terms,” he said.

Stressing that “EMG strongly protests the repeated unauthorized use of its name” for the purpose of capitalizing on its assets, Sever wrote to the Tamar partners that they are “required to state clearly in any future similar publication that EMG is not involved in any agreement or negotiations between you and Dolphinus Holdings.”

In response to the letter, the Tamar reservoir partners said that “to the best of the knowledge of the Tamar partners, contacts are being implemented for the use of the EMG pipeline.”

“The gas delivery point, in accordance with the deal, is in Ashkelon and, therefore, the Tamar partners are not part of the contacts between Dolphinus and the EMG company,” they said.

The Tamar partners cited senior Israeli energy market officials as saying that Sever’s letter “expresses the pressure of Israeli minority shareholders in EMG, as they must bear the duty of reducing the damage in arbitrations with the Egyptian government.”

Following the end of gas supplies through the EMG pipeline to Israel, Egyptian Natural Gas Holding and Egyptian General Petroleum Corporation in May 2012 filed requests for arbitration against EMG for breaching terms of contract by delaying payments for gas, according to Bloomberg.

“It seems that they have been pushed into a corner by the Egyptians – they must agree to any use of the pipeline that could generate revenue for the company,” the Tamar partners added.

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