Egypt-Israel gas deal expands in scope
Gas-rich Egypt may need regional supply to meet growing domestic demand and export aspirations in the medium-to-long-term
Israeli producer Delek and US independent Noble Energy—lead developers of Israel’s two largest offshore gas finds—agreed in early October with Dolphinus Holdings, an Egyptian conglomerate, to increase by a third the total volume of gas to be supplied under an accord signed in February last year.
The partners also revealed that the Israeli regulator had approved their acquisition of a 39pc stake in East Mediterranean Gas (EMG), owner of an existing pipeline between the neighbours built in the last decade to send Egyptian gas to Israel. The pipeline will now deliver gas in the opposite direction.
Delek and Noble initially agreed to sell a total of 64bn m³ over 10 years from the 21.4tn ft³ Leviathan and 11.2tn ft³ Tamar fields, with small initial flows from Tamar envisaged to start earlier this year. The amended supply deal, valued at around $19.5bn, commits the firms to selling 85bn m³ over 15 years on a take-or-pay basis, starting in January 2020 at 2.1bn m³/yr, rising to 4.6bn m³/yr from June to mid-2022, and then to 6.7bn m3/yr until 2034.
The volumes to be contributed from Tamar—commissioned in 2013 and currently producing close to its 1.1bn ft³/d (11.35bn m³/yr) capacity, predominantly for the domestic market—have been substantially cut, to only 1bn m³/yr during the two years from July 2020 and then to 2bn m³/yr for the remainder of the contract term. Israel’s domestic needs are expanding fast on the back of a government-led switch from coal to gas in power generation.
The revised Israel-Egypt deal is a step on the road towards resolving how to evacuate gas from Leviathan
Egypt’s interest in gas imports could seem, at first glance, counter-intuitive. First production from its 30tn ft³ Zohr field—a game-changing find by Italy’s Eni in 2015—and renewed investment by other international oil companies (IOCs), such as BP’s West Nile Delta project, enabled the country to return to gas self-sufficiency in the fourth quarter of last year. In 2108, Egypt’s production leapt by a fifth to 58.6bn m³, according to BP.
Exports have also resumed from existing LNG plants on the Mediterranean coast, with the Idku facility scheduled to return to full operation this month, albeit Damietta’s output remains mired in legal issues. The two plants’ combined output capacity is 12.7mn t/yr, requiring just over 9bn m3/yr of gas feedstock, while Idku’s capacity could be increased by 50pc with the addition of a third train.
Domestic consumption is also rising fast, by 6.5pc in 2018 alone to reach 59.6bn m³, putting a further strain on Egypt’s ability to meet commitments both home and abroad from purely domestic resources. “At present, with almost 90pc of the field discoveries already in production or under development, Egypt does not have enough domestic resources to prolong export potential after 2025,” says Aditya Saraswat, a senior analyst at Norwegian consultancy Rystad Energy.
Limited export options
The revised Israel-Egypt deal is a step on the road, albeit not a complete answer, to resolving how to evacuate gas from Leviathan—due to be ramped-up to 1.2bn ft³/d (12.4bn m³/yr) during 2020.
“Almost all Israeli gas demand is fulfilled from the already-producing [Tamar], so, for bringing additional gas online from Leviathan phase 1, the operators had to look outwards,” says Saraswat. Options are few, with the long-mooted $7bn East Med Pipeline project, to transport Israeli and Cypriot gas to Italy, remaining on hold amid formidable political, economic and technical challenges.
1.2bn ft³/d : Leviathan's projected output during 2020.
Using the idled EMG pipeline—linking Ashkelon in southern Israel to al-Arish in Egypt's northern Sinai—was always an obvious transportation option as long as Egyptian buying appetite was there; but an agreement with the asset’s existing owners was complicated by ongoing compensation claims against Cairo relating to the original export deal. In approving the midstream deal, with Noble and Delek on board, Israel’s Competition Authority stipulated that gas could not be exported at a price lower than that charged to local consumers.
All parties to the accords have refrained from commenting on the security risks to the project. The pipeline transits an unstable region, where it was subject to frequent attacks when last operational.
Source: Petroleum Economist