Israel May Need Egyptian Gas, Too, Says Expert

Egypt stopped importing gas this year and is expected to become a major regional gas exporter when its recently discovered offshore gas fields are developed

Ora Coren
Offshore drilling at Leviathan
Offshore drilling at LeviathanCredit: Albatross
Ora Coren

Israeli regulators must guarantee that the pipeline to Egypt can be used to both export and import natural gas from Israel’s southern neighbor, in order to keep local gas prices competitive, said Oded Eran against the background of regulatory review of the pipeline.

Eran, a former Israeli ambassador to Jordan, and is now a senior researcher at the Institute for National Security Studies.

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The Energy Ministry is considering a permit to use the East Mediterranean Gas Company pipeline to export gas to Egypt. After the ministry finishes its review, it will pass its recommendations to the economic concentration committee led by Antitrust Commissioner Michal Halperin. This committee will review the deal to examine how exporting natural gas to Egypt would strengthen the Delek Group in Israel as a whole as well as vis-a-vis decision-makers.

Exporting natural gas to Egypt will probably also require approval from the Antitrust Authority, which would examine how this will affect competition within Israel’s natural gas industry.

In addition, the export of natural gas from Egypt to Israel is a real option. Egypt stopped importing gas this year and is expected to become a major regional gas exporter when its recently discovered offshore gas fields are developed.

Egypt is anticipating exporting gas via the Pan-Arab pipeline, which connects to a pipeline that passes through northern Sinai. The Sinai pipeline splits off into Israel and across Taba, and the portion that heads toward Israel is the EMG pipeline.

Delek’s move to buy control of the EMG pipeline could potentially block the import of Egyptian gas into Israel.

The Energy Ministry has responded warmly to a deal that would export gas from Israel’s Tamar and Leviathan offshore gas reserves to Egypt’s Dolphinus consortium of private businesses. The deal, worth an estimated $15 billion, would necessitate sending gas through the EMG pipeline into the northern Sinai pipeline.

Israel used this pipeline to import gas from Egypt over the previous decade.

Both Tamar and Leviathan are controlled by Israel’s Delek group and its U.S. partner, Noble Energy. The partners are counting on the revenue from the Egyptian exports in order to develop the Leviathan natural gas field.

The Energy Ministry is also counting on the export deal — its strategic plan for Israel’s energy economy through 2030 is based on it — and the sale would bring in massive tax revenue.

However, ensuring that the EMG pipeline lets gas flow not just away from Israel, but also to Israel, could be important in lowering local gas prices, which are relatively high.

The Energy Ministry has said in the past that the price the Israel Electric Corporation pays for gas from Tamar, about $6 per million British thermal units, is about 50% above the competitive price.

Mohammed Shoeib, CEO of Egypt’s East Gas Company, a partner in the EMG pipeline along with Noble and Delek, told Bloomberg that if the pipeline is functional, Egypt’s Dolphinus will start importing gas from Israel in March 2019.

Noble and Delek announced last month that they were buying 39% of the EMG pipeline for $518 million, in a deal contingent on their ability to export gas to Egypt.

>> Read more: Israel Selling Gas to Egypt: Mark of the Real New Middle East | Opinion

Eran notes that outside of Israel, Egypt is the only viable option that Delek and Noble have for selling Israeli gas. Exporting to Turkey is unlikely given the current political atmosphere, and exporting via a pipeline to Europe would be prohibitively expensive given the undersea conditions. He predicts that Turkey would undermine any attempts to export to Greece so long as Northern Cyprus would also benefit.

Even though Egypt is approaching its own energy independence, Eran believes that Dolphinus has its own business considerations that make it likely to follow through with the deal with Israel.

In the meantime, gas imports from Egypt are still a long way off, as Egypt is nowhere near producing gas from Noor, its massive offshore field, Eran notes. But the Energy Ministry should prepare for this eventuality by making it a condition of the permit granted to Noble Energy and Delek for operating the EMG pipeline, he said.

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