Tamar reservoir partners to supply gas to Egypt through EMG pipeline

In an approximately NIS 4.8 billion ($1.2b.) deal, the 282-billion cubic meter Tamar reservoir will be supplying gas to the Egyptian firm Dolphinus Holdings Limited for seven years.

By
March 18, 2015 11:30
Israel's natural gas

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

 
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Revitalizing an idle pipeline that formerly brought Egyptian natural gas to Israeli customers, the Tamar reservoir partners signed an agreement on Tuesday that paves the way for Israeli gas to surge southward, to the country’s Egyptian neighbors.

In an approximately NIS 4.8 billion ($1.2b.) deal, the 282-billion-cubic-meter Tamar reservoir will be supplying gas to the Egyptian firm Dolphinus Holdings Limited for seven years – providing a minimum of 5 b.cu.m. during the first three years of the contract, the partners announced on Wednesday morning.

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The Tamar partners will be supplying gas to the Egyptian firm from the surplus available to them, following the full provision of Israeli local market needs, with the possibility of expanding the amount sold as per Egyptian market needs, the partners said.

“The contract with Dolphinus is a historic step for the State of Israel and the partners, and is the first of the many geopolitical and economic benefits to the State of Israel from the export of gas, and of similar regional partnerships in the energy sector,” said Gideon Tadmor, chairman of Delek Drilling and CEO of Avner Oil Exploration – both members of the Tamar partnership.

The agreement follows up on a letter of intent signed in October 2014 and looks to renew the Egyptian East Mediterranean Gas Company pipeline that for several years carried gas from Egypt to Israel. In 2008, EMG began supplying Israel with about 40 percent 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.

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

The newly signed agreement indicates that the daily provision of gas will be limited to up to 250,000 mmBtu (British thermal units) and subject to the supply capabilities of the Israel Natural Gas Lines, a report filed by the partners to the Tel Aviv Stock Exchange said on Wednesday. Dolphinus Holdings represents a consortium of large, non-governmental Egyptian commercial and industrial consumers, distributors and entrepreneurs, led by Dr. Alaa Arafa, they explained.



The price of gas sold in the agreement will be higher than those prices negotiated with electricity producers in Israel and similar to those determined in other export arrangements, the partners said.

Beyond the geopolitical ramifications of strengthening relations with Egypt, the deal can positively influence Israel’s economy, as the state’s share of the reservoir’s revenues amounts to about 60%, the partners added.

“We must ensure the regulatory uncertainty in the energy market, to facilitate the development of the reservoirs in a timely manner, and maximize the enormous potential that exists in this sector and from which all citizens can benefit,” Tadmor said.

One particular “regulatory uncertainty” has frozen the development of Tamar’s neighboring 621-b.cu.m. Leviathan gas reservoir, located about 130 km. west of Haifa. Originally expected to begin flowing in 2017, the development of the reservoir has been stunted due to disputes between the major stakeholders in the basin and the Israeli government.

Noble Energy owns 39.66% of the Leviathan reservoir, while Delek Drilling and Avner Oil Exploration each own 22.67% and Ratio Oil Exploration holds 15%.

The basin’s future became uncertain when on December 23, Antitrust Authority commissioner David Gilo announced that he would reconsider whether the presence of Delek and Noble in Israel’s Mediterranean gas sector constitutes an illegal “restrictive arrangement,” similar to a cartel. In addition, the commissioner withdrew his support for a proposed consent decree that would have allowed the companies to resolve the issue by selling two smaller gas reservoirs, in favor of remaining in both Leviathan and Tamar – a neighboring smaller reservoir, in which Noble Energy and Delek are also the principal shareholders.

On February 18, an interministerial team presented Noble Energy and the Delek Group with a draft outline aimed at solving a situation, proposing that the Delek Group exit the Tamar reservoir entirely and that Noble Energy sell its portion of the basin that would have been directed to the domestic market.

The document called for the companies to separately market any gas sold from Leviathan to Israeli consumers. In addition, the partners would be required to sell their two smaller reservoirs, Karish and Tanin, as had been originally suggested in the proposed consent decree.

But six days later, Gilo announced that he would postpone his decision regarding the status of the companies for another two months, allowing for closed-door negotiations between the government and the firms to continue.

Citing Israel’s failure to solve the antitrust dispute, however, the Palestine Power Generation Company called off a 20-year deal last Wednesday that would have enabled the sale of about 4.75 b.cu.m. of gas from Leviathan to a future Palestinian power plant in Jenin. The contingent termination of the agreement occurred as a result of “the non-receipt of the approval by the Antitrust Authority, the delay in approval of the development of the Leviathan project and the non-receipt of other regulatory approvals,” according to a TASE report filed by the partners last week.

Other letters of intent among the Tamar and Leviathan partners and regional customers still exist in Jordan and Egypt, but industry experts have stressed that the realization of these deals could be jeopardized without a swift resolution to the internal Israeli squabbles.

The Tamar partners signed a 15-year letter of intent in May for the provision of 71 b.cu.m. of gas to the Spanish Union Fenosa liquefied natural gas (LNG) production plant in Damietta, Egypt, while in June, the Leviathan partners signed a letter of intent for the 15-year supply of 105 b.cu.m. of gas to the empty British Gas liquefaction plant in Idku.

In addition, the Leviathan partners signed a letter of intent in September with Jordan’s National Electric Power Company (NEPCO) for the 15-year provision of 45 b.cu.m. of gas – an agreement that has generated upheaval among many of Jordan’s parliament members.

Meanwhile, in an unrelated dispute on Sunday, the Tamar partners sued the state for some $15m., claiming that the government has collected more royalties than permissible on their natural gas sales. This disagreement is regarding a November 2014 National Infrastructures, Energy and Water Ministry demand that required the companies to pay the difference between royalties derived from Tamar market values and those derived from gas drawn from the older, lower-priced Yam Tethys field.

Nonetheless, on Wednesday, the Tamar reservoir partners reiterated that during 2014, they transferred to the government royalties from both Tamar and Yam Tethys – of which they are also the primary shareholders – amounting to about NIS 718m. From 2018 onwards, royalties are expected to amount to about NIS 3.2b.-3.4b. annually, the partners added.

“We are proud to be part the transformation of Israel into an energy anchor for the region,” said Delek Drilling CEO Yossi Abu. “The agreement with Egypt, together with the letters of intention signed with NEPCO and the companies British Gas and Union Fenosa in Egypt, are poised to create a radical change in the geopolitical position of Israel in the region and generate hundreds of billions for the state’s coffers. Placed before us is an historic opportunity, and it is important that we know how to exploit and maximize it for the benefit of Israel.”

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