Investor anxieties over the Tamar natural gas field have deepened in recent days amid security concerns about the pipeline designated to deliver Israeli gas to Egypt.
The Wall Street Journal reported Thursday that delays in completing a key agreement to facilitate the exports were due to the tense security situation in Egypt’s Sinai Peninsula.
“There’s some infrastructure that needs to be repaired in that area. That’s part of the holdup for shipping the gas,” the paper quoted U.S. Deputy Energy Secretary Dan Brouillette as saying. “No one wants to send individuals into harm’s way.”
Noble Energy and Delek Drilling reached a deal at the start of 2018 to sell gas from Israel’s Tamar and Leviathan fields to the Egyptian company Dolphinus. The agreement is not only worth $15 billion but was hailed as a step toward closer commercial ties between the two countries.
However, since then the two companies’ efforts to seal the deal have been delayed.
On Sunday, Noble and Delek said the agreement with Dolphinus was “advancing as it should,” citing recent regulatory approvals from Israel and Egypt.
A key component of the export plan was for the two companies and the Egyptian Natural Gas Holding Company to pay $518 million for a 39% stake in EMG, the operator of a pipeline between Ashkelon and El-Arish in Egypt, to deliver the gas.
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The goal was for the gas to start flowing via the Israeli domestic pipeline network to EMG and then on to the domestic Egyptian network by the end of this year. Tamar would supply initial quantities in small amounts until the bigger Leviathan field was up and running, and supply the full quota, which was expected to reach as much as 7 billion cubic meters annually. But completion of the EMG deal has been delayed twice.
The pipeline route was originally designed to export Egyptian natural gas to Israel, but after a series of attacks on it, combined with a shortage of gas in Egypt, Cairo canceled the export accord in 2012. The security concerns remain. Militants have escalated a campaign of attacks in recent months, claiming to have killed some 300 people in the first half of the year.
Meanwhile, Egyptian Petroleum Minister Tarek el-Molla said last week his country would initially receive about 2 bcm of Israeli gas annually, with supplies rising eventually to 5 bcm. The amounts he spoke about were far less than the 7 bcm originally cited in agreements.
Nevertheless, by confirming that the export deal was still on track, Molla’s remarks gave a brief lift to Tamar Petroleum, boosting its shares in Tel Aviv 8% last week. But the stock is down 50% since the company, which has a 16.5% stake in the Tamar field, went public. Its shares fell 1% on Sunday to 9.36 shekels ($2.65).
The price of Tamar Petroleum bonds has fallen 7% this year, boosting their yield to 7.4%. The higher yield reflects anxiety over the company’s ability to repay its 4 billion shekels in bond debt.
Egyptian exports are critical as increased competition in the Israeli market has eaten away at the Tamar field’s sales. It has lost $850 million in sales to Israel Electric Corporation and its contract with the utility calls for a 25% price cut in 2021. It has also ceded business with Israel Chemicals to the Leviathan and Karish fields as well as with customers like Oil Refineries Ltd., Paz Oil and private electric power stations.
All told, Tamar’s sales are expected to fall from 10.3 bcm to 6.3 bcm in 2020 and 5 bcm the year after. To make matters worse, the so-called Sheshinski windfall profit tax kicks in next year, and natural gas prices have been falling worldwide.
Delek Drilling, which has stakes in the Tamar and Leviathan fields, is also coping with investor worries. Its bonds have fallen 5.5% this year, lifting their yields to as high as 7%.
An industry source said over the weekend that Molla’s lower figures for Israeli gas exports were due to uncertainty over the ability of the Egyptian pipeline to take all the gas coming from Israel. Noble has said the Israeli domestic network can handle 4 bcm to 4.5 bcm annually, but Israel Natural Gas Lines Company has never confirmed that.
Egypt has also not made clear yet whether it will end gas exports to Jordan through the same pipeline that is designated for Israeli gas exports to Egypt. In a meeting with his Jordanian counterpart last week, Molla spoke about deepening energy ties between the two countries.