$15 billion worth of Israeli natural gas to be sold to Egypt

Gas operators 'Delek Drilling' and 'Noble Energy' announced on Monday that it has signed agreements with Egyptian Company 'Dolphinus' worth an estimated $15 billion.

Israel announces new agreement to export natural gas to Egypt, February 19, 2018. (GPO)
The operators of the Tamar and Leviathan natural-gas fields have signed decade-long contracts to sell $15 billion worth of natural gas to Egypt, according to documents made public by Delek Drilling LP on Monday, a sign of strengthening diplomatic ties.
The companies that operate the fields, which include Israel’s Delek Drilling and Houston-based Noble Energy Inc. among other smaller partners, reached an agreement with Egyptian company Dolphinus to ship the gas over the first 10 years after production starts and no later than 2030.
With the news, Israel will now be providing both Egypt and Jordan with natural gas, cementing ties with its two neighbors despite historically “cold” peace treaties.
Delek and Noble will supply Egypt with about seven billion cubic meters of gas annually, with 64 b. cu. m. of gas exported in total – barring major obstacles such as pipeline installations.
Half of the gas will come from the deepwater Tamar reservoir, which is already up and running, and half will come from Leviathan, which is currently under development but plans to begin operations in 2019. The deal still needs to be formally approved by regulators in both countries.
Prime Minister Benjamin Netanyahu touted the agreements with Egypt as a sign of Israel’s burgeoning geopolitical sway, adding that it would benefit state coffers with tax revenue.
“Many did not believe in the gas outline,” he said. “We led it forward with the knowledge that it would strengthen our security, strengthen our economy, strengthen regional relations, and above all, it would strengthen the citizens of Israel... This is a joyous day.”
To transfer the gas, the companies are looking at various pipelines, including the pipeline of East Mediterranean Gas, which runs parallel to the Gazan shore. Delek and Noble plan on negotiating with EMG for use of that pipeline. But EMG, which went bankrupt, has been mired in arbitration with Egypt for years after a previous gas deal that was going to supply Israel with Egyptian gas fell through.
Some observers questioned the immediate viability of the plan.
“There’s not even a route determined, so it’s hard to sign a binding agreement,” said Brenda Shaffer, an American-Israeli professor at Georgetown University in Washington who has previously advised the Israeli government on energy policy. “Either EMG would need to agree to transit the gas – and that’s to resolve the whole arbitration process... For years, the Egyptians said they wouldn’t buy Israeli gas until the arbitration is dropped.”
The second option would be to ship the fuel through the existing Pan Arabian pipeline via Jordan.
“If the gas is sent through Jordan, then Jordan has to agree and to establish reverse flow,” Shaffer said. “It’s still somewhat complicated.”
That would come in addition to the gas being pipelined as a result of agreements signed in 2016 to supply Jordan with gas from the Leviathan field. The 15-year contract with the Jordanian National Electric Power Company is worth about $10b. A large pipeline to Jordan from Leviathan is currently being constructed.
A third plan would see a pipeline built through the Negev desert.
There is a chance that all three options could be used simultaneously, according to Miki Korner, a private energy consultant and former chief economist for the Natural Gas Authority.
“The true story is that there’s an economic breakthrough,” he said. “It’s the first time that an Egyptian commercial entity is signing an agreement of this size. Trade with Egypt is very small, and if this succeeds, it can change it... Someone who doesn’t like the peace with Israel may not like the agreement.”
Despite importing supplies from Israel, Egypt plans to export its own gas through its Zohr field by the end of 2019. Yet, the amount of gas produced in that field likely will not keep up with the domestic Egyptian demand, requiring supplements from Israel.
Leviathan is located some 130 km. west of Haifa. Noble Energy has a 39.66% stake in the Leviathan reservoir, while Delek Drilling owns 45.34% and Ratio Oil Exploration holds 15%.
Noble also holds a 32.5% share of Tamar, currently Israel’s only actively operating natural-gas field.
After reports of the Egypt deal, Delek’s shares rallied by nearly 19% on the Tel Aviv Stock Exchange as of closing. The company is owned by billionaire Yitzhak Tshuva.
Dolphinus, the Egyptian gas trading company, is a consortium of consumers and distributors founded by Dr. Alaa Arafa, Khaled Abu Bakr and Muhammad Khalifa.
“We have reached an important milestone in realizing the collective vision and dream of making Israel a significant exporter of gas to countries in the region,” Tshuva said, according to Globes. “The agreement will strengthen the relations between Israel and its neighbors and increase economic cooperation between them.”