Israeli Natural Gas Giant Signs $15 Billion Export Deal With Egypt

Israeli energy shares leap on news of 10-year, $15 billion natural gas export deal with Egypt from Leviathan and Tamar

An Israeli gas platform is seen in the Mediterranean Sea, August 1, 2014
\ AMIR COHEN/ REUTERS

Delek, the Israeli oil and natural gas explorations group owned by the billionaire Yitzhak Tshuva, on Monday announced two deals to sell gas to the private Egyptian company Dolphinus Holdings.

The Dolphinus deal is for 64 billion cubic meters over 10 years, worth about $15 billion.

Prime Minister Benjamin Netanyahu applauded the agreement, hailing it as cause for celebration and saying that the income will "benefit the education, health and welfare of Israeli citizens." He added that the deal will "strengthen our security, strengthen our economy, strengthen regional relationships, and most importantly, it will strengthen the citizens of Israel."

The gas is supposed to be supplied from the deepwater offshore gas fields Tamar and Leviathan in the Mediterranean Sea, which Delek owns together with the American energy company Noble.

Reports of the Dolphinus deal sent shares of the parent company Delek Group climbing 17% in late Monday trading on the Tel Aviv Stock Exchange. Subsidiary Delek Drilling, the company actually signed onto the Egyptian agreement, was up more than 23%. Market players suggested a short squeeze also came into play: investors who had bet against the "gas shares" were reversing position, fueling the gains on the market, they suggest.

The Egyptian company, Dolphinus Holdings Limited, is a consortium of non-governmental industrial giants led by Dr. Alaa Arfa.

The gas supply should start as soon as the required pipeline infrastructure has been arranged, and will continue until the contract has been fulfilled, or by the end of 2030, whichever is  sooner, the companies explained.

Egypt has gas reserves of its own but also has very heavy demand for natural gas, for domestic use - and for export as liquefied natural gas. The multinationals operating in Egypt envision buying Israeli gas, liquefying it in Egyptian facilities and exporting the LNG to Europe.

In January, Noble Energy stated that it plans to expand in Israel ahead of Leviathan's start of production in 2019.

Noble owns about 40% of Leviathan, where the estimated gas reserves total 622 billion cubic meters. Most of that is earmarked for exports, a move that critics complain is detrimental to Israeli energy security. Delek owns 45% of Leviathan through group companies. Noble also Noble alsoowns 32.5% of Tamar. presently Israel’s main source of gas. It has until 2021 to reduce its holding to 25%, pursuant to government plans to open the market to competition.

The new deal envisages possibly using pipeline infrastructure put in place years ago through the Sinai Desert by a different company, EMG, to import Egyptian gas to Israel. When it was in service, that pipeline had been blown up time and again by terrorists leading to the halt of exports from Israel in 2012 (the pipeline was repaired after the attacks and still exists). Other possibilities are also being considered. Earlier today, the Cairo Regional Centre for International Commercial Arbitration ruled that EMG, the company that operated the pipeline to Israel, should be awarded $1.03 billion plus interest after the gas deal fell apart.

Regarding the new deal, another option might be to utilize the gas pipeline being built between Israel and Jordan, also for the supply of Leviathan gas in the future.

Dolphinum is a consortium representing major Egyptian non-government consumers – industrial and commercial.