Jewish-American real estate baron Samuel Zell is in advanced stages of negotiating to buy more than 10% of the Egyptian-Israeli gas consortium Eastern Mediterranean Gas & Oil (EMG).

EMG was established in 2000 to supply natural gas from Egypt to Israel and other countries. The partnership included Egyptian businessman Hussein Salem (65%), the Egyptian National Gas Company (10%) and Israeli businessman Yossi Maiman (25%).

Zell would be buying shares from Salem, who owns 65% of EMG. The company was recently valued at $2.22 billion.
 
A high-ranking Egyptian delegation and Zell's representatives are expected to arrive in Israel today, to meet with top officials of the National Infrastructures Ministry and Israel Electric Corporation (IEC).

The delegation will also visit Ashkelon to inspect the construction of the terminals for EMG's natural gas.

Zell, the son of Jewish immigrants who fled Poland on the eve of WWII, is ranked 52nd among the list of America's richest. His fortune is estimated at $4.5 billion.

Renowned for his donations to the Interdisciplinary Center in Herzliya, Zell is apparently making his initial business entry into Middle East and the energy market with the EMG deal.

If completed, the transaction will constitute a first-rate stamp of approval of Israeli natural gas potential, as well as a vote of confidence in the Egyptian supplier, which operates under the shadow of political uncertainty in the area.

The local natural gas market has become more dynamic over the past few weeks as the gas transportation system between Ashdod and Ashkelon - the first stage in the EMG pipeline - nears completion, and particularly due to the progress made in secret talks with British Gas (BG) over the purchase of natural gas from reservoirs located off the Gaza coast.

Private entrepreneurs have shown a growing interest in power stations fueled by natural gas, and as a result, the interest of institutional investors in EMG shares has been piqued.

TheMarker also learned that as the expected flow of natural gas to Israel draws near, institutional financial investors from Israel, Europe and the United States have started to become interested in the project. The pipeline between El Arish and Ashkelon is currently being laid, and gas is expected to begin to flow next year.

The meeting between company representatives and senior National Infrastructures Ministry officials is expected to draw even further interest due to the tensions between the parties due to the formulation of an agreement for the government to purchase natural gas from EMG's competitor, BG. It is unclear whether Minister Binyamin Ben-Eliezer will head his ministry's team at the meetings, but a number of senior officials are slated to participate.

A deal was reached in 2005 between the Israeli and Egyptian governments as part of a political agreement according to which Cairo undertook to allocate 7 billion cubic meters (BCM) of Egyptian gas to the Israeli market for 20 years, with an option to double the supply. That same year, EMG signed a $2.5 billion agreement with IEC for 1.7 BMC, representing a 15-year supply of natural gas, with an option to increase it by 25 percent and extend the term by 5 years.

EMG also signed a memorandum of understanding for the supply of gas to the private power station initiative, Dorad, as well as to Machteshim Agan, Hadera Paper, Nesher and Eshkolot Energy.

Recent reports by Ampal, which has since become a shareholder in the company, indicate that EMG recently signed memoranda of understanding for the sale of 3.8 BCM annually. Israel Chemicals also announced about a month ago that it was in advanced stages of negotiating for the purchase of natural gas in a 15-year contract worth $1 billion.

EMG has signed contracts totaling 67.5 BCM, and since its inception has sold an estimated $7.4 billion worth of gas.

Maiman sold half of his 25% stake in EMG to his company Ampal for $258.8 million in two separate insider transactions, reflecting a company valuation of $2.07 billion for EMG.

Maiman further diluted his holdings in EMG over the past few weeks after selling 1.8% of Merhav's shares to institutional investors (Clal Insurance, Harel Investments and Menorah) and the Israel Infrastructure Fund for $40 million (at a valuation of $2.22 billion).

He transfered an additional 1.8% of Ampal shares to a joint investment firm specializing in energy, and sold 4.3% of Ampal's shares last week for $11.76 a share.

A Merhav Group spokesman said the company welcomes the interest of Israeli and foreign private and institutional investors investing in EMG.

"We have always believed that with the transition from development to construction, and as we near full operation of the project, international interest in a partnership would grow. This belief is now materializing, as a variety of international investors say that this is a very promising investment."