Energizing diplomacy with our neighbors

Forty years on, Israel-Egypt energy cooperation opens the door to warmer relations

By
March 24, 2019 14:11
Energizing diplomacy with our neighbors

THE LEVIATHAN jacket.. (photo credit: ALBATROSS)

 
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Is natural gas propelling us toward the future frontier of stronger Jerusalem-Cairo ties?


The energy cooperation deal signed between Israel and Egypt is the Jewish state’s first significant economic agreement with Egypt since the 1979 peace accord – and a dramatic step up in political and economic relations.
So said Amir Foster, head of strategy and research at the Association of Oil & Gas Exploration Industries, explaining that joint energy cooperation has already led to results in the field. 
In September 2018, Noble Energy and Delek Drilling signed agreements to purchase a stake in the Eastern Mediterranean Gas Company pipeline to advance the export of gas to Egypt. 


“This was not just ‘another deal,’ but a dramatic development that changes the existing situation, providing the physical infrastructure for realizing the gas export deal with Egypt signed in February 2018,” Foster said. 


Foster was referring to the February gas export deal between the Tamar and Leviathan gas partnerships, operated by Noble, to export natural gas on a scale of 64 BCM (billion cubic meters) to the domestic Egyptian market over a period of 10 years. 


This agreement joins two others signed by the Israeli gas companies with another neighboring Arab country – Jordan: a deal to export gas from the Tamar reservoir to the Jordanian Dead Sea plants, and the huge deal to sell natural gas from the Leviathan reservoir to the Jordanian electricity corporation. 


“This is the most important thing happening with Egypt since Anwar Sadat came to Israel,” Foster said.


Playing with our adversaries


It all started in 2004, when Israel began producing natural gas from its own offshore gas fields. In 2009 and 2010, with the discovery of the major natural gas fields, Tamar and Leviathan, the Jewish state was transformed from an energy-importing country into a country that could meet its own energy needs as well as an exporter of energy.


Today, natural gas in Israel is a primary energy source for the Jewish state, mainly utilized for electricity production, and soon to be leveraged in additional ways, according to Binyamin (Bini) Zomer, Noble Energy’s vice president for regional affairs.


But the more drastic shift is that by beginning of next year, said Zomer, Israel will already be supplying former adversaries Jordan and Egypt with natural gas valued at $26 billion. 


The Egypt deal alone is valued at $15 billion and will help turn Egypt into a regional energy hub. Moreover, there are plans to construct a 2,000-kilometer pipeline to supply Eastern Mediterranean gas to Europe.


Foster said that Israel has gas fields “with a really huge amount of gas, much more than we need, so we can export it.” In contrast, he said Egypt has been struggling to maintain enough gas for long-term use.


“Egypt had the need to find additional long-term sources of supply, and this is where Israel comes into the picture,” Foster explained.
Though Egypt discovered and operated a network of gas production lines, they have since been depleted for various reasons. At the same time, the need for gas in Egypt has been growing commensurate with the population and its improving economy.


Although the natural gas agreement with Egypt was signed between private entities – Delek, Noble and EMG – the Egyptian government under President Abdel Fattah el-Sisi has expressed satisfaction with it. At the time that the original deal was signed, el-Sisi said that the country was not directly involved in the deal but “provided several things to ... achieve this deal.” He said he wants as much gas as possible from the region flowing into his country for domestic use and export by means of the liquefaction facilities it already has. Egypt’s gas liquefaction facilities can convert the gas into liquefied natural gas for export to Europe, said Zomer. 


A recent report by the European Council on Foreign Relations said Egypt is the only country in the region that could export gas to Europe independently because of the size of its reserves and its existing export infrastructure.


“It’s something I have been dreaming about for the past four years,” el-Sisi said when the deal was signed. “All the gas from our region will come to us or we will use it for our consumption, or we will export it ourselves.”


Foster said one can estimate Israel’s economy has enjoyed around a roughly NIS 60 billion infusion from the development of the gas sector since 2013, “but I think the geopolitical benefit that it will have is priceless.” Zomer said his company will recruit hundreds of employees, contractors and sub-contractors for the Leviathan project.
 
“How do you measure the benefit of energy independence and security?” Foster asked.


Turning our adversaries into our friends
One obvious sign of improved collaboration between Egypt and Israel around energy was the 2018 establishment of the Mediterranean Sea Natural Gas Organization, a strategic collaboration between Israel, Egypt, Italy, Greece, Cyprus, Jordan and the Palestinian Authority.
 
Additionally, earlier this year, Energy Minister Yuval Steinitz made his first state visit to Egypt since the Arab Spring in 2011. The visit included bilateral meetings with Egyptian Petroleum Minister Tarek El-Molla.


“This is further evidence that the benefits of developing the gas reservoirs are not only economic and environmental, but also geopolitical and political,” the ministry said in a statement.
 
El-Molla told CNBC last year, “The benefit will be there and the welfare will cover all the countries, because gas will be the cause of the revenues to generate opportunities, job opportunities, business opportunities, and it will bless all the people in the Middle East. Hence it is the catalyst and it will be the peacemaker, really.”


Another sign of improvement was the recent announcement that American oil and gas giant ExxonMobil is considering exploring for energy off the Israeli coast. Major energy companies like Exxon and rivals Royal Dutch Shell and Total have been reluctant to invest in Israel due to lucrative operations in energy-rich Arab states along the Gulf Coast and fear that they would become marginalized or penalized for working with Israel.


The Exxon announcement is an indication that this might change.


Zomer said that using natural gas has many benefits for the Israeli population.


“Israel has already displaced fuel oil and some coal in the production of electricity and is poised to displace more coal. In addition to being more environmentally friendly, natural gas is cheaper and, because it is domestically produced, will bring in much-needed revenues to the state,” Zomer said.

“Today, nearly 70% of power generation in Israel is based on natural gas, a number that will grow to as much as 85%.” 


“I think people here in Israel don’t yet understand the benefits,” Foster noted. “It’s healthier for the Israeli citizens and it is providing us with the most significant economic cooperation between Egypt and Israel since the signing of the peace treaty between the two countries.”


“The more people interact and the more their economies are tied, the more opportunity for talking with and understanding one another,” added Zomer. “In my experience, the natural gas discoveries and the cross-border deals have provided an ideal tool for cooperation.”

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