Israeli Firms Eye Lucrative Energy Deal With Egypt Despite Ruling

Egypt froze gas export deal talks after it was ordered to pay Israel $1.8 b after past deal collapsed because of pipeline attack.

AP

Delek Group, Ratio Oil Exploration and Isramco — the Israeli partners in the Tamar and Leviathan gas fields — said on Monday they would push ahead with talks to export natural gas to Egypt, a day after an arbitration ruling on an unrelated matter caused Cairo to freeze negotiations.

Egypt’s state-owned oil and gas companies said on Sunday they would appeal more than $2 billion in penalties that arbitrators at the International Chamber of Commerce ordered them to pay after Egypt rescinded a gas-export agreement with Israel in 2012.

Egypt also said it would freeze negotiations that involve Delek and its partners focused on plans to send gas the other way, from Israel’s Leviathan and Tamar offshore fields to Egypt, beginning in around 2019. It said it would also decline to approve any import contracts.

In a joint statement, the three Israeli companies noted that they were not in talks with Egyptian government-owned gas companies but with private firms, referring to negotiations with BG Grfoup and Union Fenosa, two European companies that want to import Israeli gas for reexport to Europe through liquefied natural gas plants they control in Egypt, now idled for lack of gas.

The three Israeli companies said they were “in constant contact with the [commercial] companies (in Egypt) and are continuing with the negotiations as planned.”

“Furthermore, the parties will continue to work with the relevant authorities in the governments of Israel and Egypt in order to get the required approvals,” they said in a statement to the Tel Aviv Stock Exchange.

Meanwhile, National Infrastructure, Energy and Water Minister Yuval Steinitz said Israel hoped that “thanks to our close bilateral ties, we will be able to keep moving forward with the gas issue already in the near future.”

Despite the reassurances, energy shares on the TASE were down sharply Monday. The two Delek Group energy units, Avner and Delek Drilling, both lost 2.4% to end at 2.53 shekels (65 cents) and 13.26 shekels, respectively. Ratio dropped 2% to 29 agorot and Isramco fell 1.1% to 69 agorot.

“The story as it is unfolding now could snowball by accident into a political crisis between Egypt and Israel that in the end could bring about a crisis of confidence and no signature on any agreement to export to gas to Egypt,” warned Gal Reiter, energy analyst at Bank of Jerusalem.

He noted that the gas partners have no connection with the arbitration dispute, but could be swept up by the political crisis. “It doesn’t mean that without Egypt Leviathan won’t be developed, but the risk has grown and the return on the project has fallen,”

Israel had been importing gas from Egypt under a 20-year deal but the pipeline became a target of militants and supplies were eventually halted. State-run Israel Electric Corp. won compensation after arguing it had suffered as a result.

The Egyptian state-owned firms Egyptian Natural Gas Holding Company and Egyptian General Petroleum Corporation were ordered to pay IEC compensation of $1.76 billion plus interest and legal expenses. They were also ordered to pay pipeline operator Eastern Mediterranean Gas $288 million, both of which they said they would appeal.

However, the penalties are dwarfed by the potential economic and political windfall to Israel from the new gas export deals being negotiated in Egypt, one of two Arab countries with which it has signed a peace deal.

“We must look at the entire picture,” said Amos Gilad, a senior adviser to Israel’s defense minister and liaison to Egypt, when asked on Israel Radio whether the Israeli government might decide to forego the compensation payment.

“It can’t be looked at as purely a commercial issue.”

He said the countries shared common security interests, and hinted there might be some room to negotiate on Egypt’s decision to appeal the arbitration ruling.