Israel to Sell $1.2 Billion of Natural Gas to Private Customers in Egypt

Natural gas would go through underwater pipeline originally built, a decade ago, to send gas from Egypt to Israel.

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A group of private customers in Egypt have agreed to buy at least $1.2 billion of natural gas from Israels offshore Tamar field via an old pipeline built to send gas to Israel.

The Tamar partners said Wednesday they signed a seven-year deal with Dolphinus Holdings, a firm that represents non-governmental, industrial and commercial consumers in Egypt, that calls for a minimum 5 billion cubic meters of gas to be sold in the first three years.

One energy source in Israel, however, said the total export amount in the deal could be more than three times higher, depending on demand in Egypt, which is facing an energy crisis.

The supplies will pass through an 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 in a 20-year agreement, but the deal collapsed in 2012 after months of attacks on the pipeline by militants in Egypts Sinai Peninsula. It has since been out of commission and East Mediterranean Gas is suing the government of Egypt for damages.

An oil ministry source in Egypt told Reuters the ministry had not received any requests from private-sector firms to import gas. The ministry is ready to agree to gas imports from abroad if the imports achieve the three conditions of adding value to the domestic market, solving international arbitration disputes and providing gas to the market, the source said.

Recent offshore discoveries such as Tamar, with an estimated 280 billion cubic meters 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 is seeking numerous import options. In fact, Egypts gas reserves are double the size of Israels, but poor management of that countrys resource has led to the absurd situation in which it has been forced to import gas. The government bought gas from foreign energy firms operating in the country, but it paid them less than their cost of exploration and production, leading the companies to cut off their supply. In addition, the government accumulated debt to the companies for gas provided.

In trading on the Tel Aviv Stock Exchange, the shareholders of Tamar that are traded in Tel Aviv — Delek Drilling, Avner Oil and Isramco Negev — closed up between 6.1% and 8.9% on the day, outpacing the more modest gains of about 1% in the broader market. Texas-based Noble Energy is the fields operator.

The chairman of Delek Drilling, Yossi Abu, said the deal shows that Israel can be an energy anchor for countries in the region and that, along with a pipeline of export agreements under negotiation, it will radically change Israels geopolitical status.

The Dolphinus deal is linked to the price of benchmark Brent oil and is subject to various approvals in Israel, Egypt and from East Mediterranean Gas. Noble and Delek, which are also developing Leviathan, have been negotiating two larger export deals with foreign operators of liquefied natural gas plants in Egypt, but those deals have been on hold since Israels competition regulator said it might declare the developers a monopoly.