Tamar Partners Negotiating Sale of Natural Gas to Egyptians

Gas will be delivered via pipeline originally built to transport Egyptian gas to Israel.

Off Haifa coast, oil rig at enormous Leviathan natural gas field.
Albatross

The partners in Israel’s offshore Tamar gas field said on Sunday they are negotiating the sale of at least five billion cubic meters of gas over three years to private customers in Egypt via an old pipeline built to send gas in the other direction.
Under the agreement, the supplies would pass through a combined underwater pipeline constructed nearly a decade ago by East Mediterranean Gas, the company that oversaw a now-defunct Egyptian-Israeli natural-gas deal.
Egypt had been selling gas to Israel under a 20-year agreement, but the deal collapsed in 2012 after months of attacks on the pipeline by militants in Egypt’s lawless Sinai Peninsula. It has since been out of commission and EMG is suing the Egyptian government for damages.
Recent offshore discoveries such as Tamar, with an estimated 280 BCM of gas, and Leviathan, which is more than twice as big, have turned previously import-dependent Israel into a potential energy exporter. Egypt has been slow in developing its own sizable gas resources and now faces an energy crisis.
The Tamar consortium, led by Texas-based Noble Energy and Israel’s Delek Group, said in a statement that they signed a letter of intent to negotiate with Dolphinus Holdings, a firm that represents non-governmental, industrial and commercial consumers in Egypt.
“The memorandum of understanding with Dolphinus is another important link in the series of agreements that will allow the supply of natural gas to the domestic market in Egypt,” said Gideon Tadmor, CEO of the Delek subsidiary Avner. “I have no doubt these agreements will lead to a strengthening of ties between Israel and its neighbors.”
The gas to be sent through the pipeline would be “interruptible,” meaning it would only come from excess reserves. It would be sold at a price comparable to other export agreements from Israel and based mainly on a linkage to Brent oil prices. Moreover, any deal would be subject to various approvals in Israel, Egypt and from EMG.
Tamar began production last year and output is mostly earmarked for the Israeli market. In addition, the Tamar partners are already in talks to provide an annual 4.5 BCM of gas for 15 years to Union Fenosa Gas for its liquefied natural gas plant in Egypt and 1.8 BCM over 15 years to Jordan. Union Fenosa Gas is a joint venture between Spain’s Gas Natural and Italy’s Eni.
Noble and Delek are also developing the Leviathan field and are working on a major deal with BG Group to export  7 BCM of gas a year over 15 years for their LNG plant in Egypt.
But unlike the BG and Union Fenosa deals, the gas being sold to Egypt under the newest pact would go to Egyptian consumers, not re-exported to third countries.
Gil Bashan, an energy analyst at IBI Israel Brokerage & Investments, warned that a gas deal like the one envisioned in the agreement  faces two big challenges. The first is ensuring security for the land portion of the pipeline, which was shut down by terrorist activity in 2011, a problem Egypt has yet to solve. The second is ensuring that gas sales to Egypt don’t run afoul of the quotas on domestic gas use as determined by the government’s Tsemach committee.
“Under Tsemach, the Tamar reserve can export 50% of the gas not already covered by contracts on the eve of the committee’s recommendations or about 70 BCM. The agreement with Union Fenosa is for 70 BCM, which means there’s no gas left to export,” Bashan said, adding, however, there was room for flexibility, for example by swapping quotas with other gas fields.
Another question revolves around the legal tangles of EMG, which is suing the Egyptian government for $8 billion for failure to deliver the gas it had been contractually committed to make. EMG itself is being sued by its Israeli customers, among them Israel Electric Corporation, which is seeking $1.3 billion.
Moreover, bondholders of the Israeli company Ampal held a 12.5% stake in EMG and left them with 900 million shekels ($241 million) of unpaid debt. On Sunday, Ofer Shapira, an attorney representing them, said he was surprised to learn of the agreement and was still studying it.