Leviathan Offshore Gas Field Partners Reach Export Deal With Egypt

Plan calls for use of pipeline built to bring Egyptian gas to Israel, but security is a concern.

Offshore Leviathan natural gas drilling site.
Albatross

Natural gas from Israel’s vast Leviathan offshore gas field will be pumped to Egypt via an existing subsea pipeline for up to 15 years under a preliminary deal announced by the field’s developers yesterday.

Leviathan, which is expected to begin production in 2019 or 2020, will supply Egypt’s Dolphinus Holdings with up to 4 billion cubic meters of gas a year for 10 to 15 years, the companies said in a statement to the Tel Aviv Stock Exchange.

Dolphinus is a company that represents nongovernmental, industrial and commercial consumers in Egypt.

Signing a letter of intent, the two sides agreed to negotiate terms for a final deal. The price of gas is similar to other contracts and is linked to the cost of Brent oil and includes a floor price, they said.

“We’ve worked with Dolphinus before and we expect to reach a final agreement quickly,” Yossi Abu, CEO of Israel’s Delek Drilling, told Reuters.

Development of Leviathan, which holds an estimated 622 billion cubic meters of natural gas, is being led by Texas-based Noble Energy and Israel’s Delek Group through its units Delek Drilling and Avner.

Shares in Delek Drilling ended up 1.2% at 14 shekels ($3.61) in Tel Aviv Stock Exchange trading. Avner rose 1,.4% to 2.67 shekels, but their parent company fell 0.55% to 910.

“The Egyptian market is thirsty for gas, both for domestic use and for their export facilities. There is a lot of room for cooperation there,” Abu said.

Under the agreement, the gas would pass through an underwater pipeline built nearly a decade ago by East Mediterranean Gas that was designed to deliver Egyptian gas to Israel.

But the Egypt gas accord collapsed in 2012 after months of attacks on the pipeline by militants in the country’s remote Sinai Peninsula and Cairo questioning the terms of the agreement and finally rescinding it.

Industry sources have warned that any gas contract that relies on the EMG pipe faces the same kind of security concerns that plagued the pipeline in 2001 and 2012. Terror attacks in Sinai, most notably the downing of a Russian jetliner in October and an attack on an Al-Arish hotel this week, have increased since 2012.

The companies said the new deal, which is still subject to numerous approvals, would not affect negotiations between Leviathan’s partners and Britain’s BG Group on a potential supply deal to BG’s liquefied natural gas plant in Iduku, Egypt.

The two sides last year signed a preliminary supply deal for 7 bcm a year for 15 years.

Egypt has said it still wants to import Israeli gas despite Italy’s ENI discovering the large Zohr gas field off Egypt’s coast in August.

Earlier this year, Dolphinus agreed a seven-year deal to buy at least $1.2 billion of gas from Israel’s Tamar field, near Leviathan.

“Egypt is becoming a regional hub through cooperation with the Leviathan and Tamar partners, and together with Israel and Cyprus,” Abu said.

A source in Egypt’s Petroleum Ministry said that companies wishing to import foreign gas must obtain state approval. It “must achieve a national interest for Egypt and must have added value for the economy,” the source said.

The state, the source added, does not mind allowing private sector companies that wish to import gas for their own use or for a range of industries to use the infrastructure and facilities owned by the state in exchange for a tariff to be agreed.

Leviathan’s $6 billion development was halted when Israel’s antitrust regulator ruled that Noble and Delek’s control of Israel’s gas reserves constituted a monopoly, leading to a dispute with Prime Minister Benjamin Netanyahu.

The regulator resigned and Economy Minister Arye Dery stepped down last month, giving Netanyahu control of the ministry. He is expected to give rapid approval to the gad framework the government signed with the two companies to develop Leviathan. National Infrastructure, Energy and Water Minister Yuval Steinitz expects Netanyahu to sign a waiver by the end of the year to bypass antitrust concerns.

Industry sources told TheMarker yesterday that Delek and Noble were working hard to reach an agreement whose timing was meant to help Netanyahu make the case for waiving antitrust concerns in favor of national security.

The Knesset Economic Affairs Committee’s hearings on the waiver, which Netanyahu as economics minister is entitled to issue, will only result in a recommendation about whether he should act or not. But the prime minster is concerned that opponents of the gas framework will appeal to the High Court of Justice. Without an agreement like the one with Dolphinus in hand, the court might not be convinced that national security issues should take precedence.

Jordan has also agreed to buy gas from Leviathan for 15 years, worth up to $15 billion, though the deal has yet to be finalized.