New Deal Hikes Export of Israeli Natural Gas to Egypt

Agreement could boost revenue to $19.5 billion over 15 years, as antitrust authorities clear pipeline deal

Benjamin Netanyahu speaks alongside Energy Minister Yuval Steinitz during the inauguration of the newly arrived foundation platform for the Leviathan natural gas field in the Mediterranean Sea, Haifa, on January 31, 2019.
Marc Israel SELLEM/AFP

Israel will increase its planned natural gas exports to Egypt by more than one-third under a new agreement announced by Israeli energy companies Wednesday. The companies also won approval from Israeli antitrust authorities to take a stake in a pipeline to deliver the gas.

The amended agreement calls for a 34% rise in Israeli exports, to about 85 billion cubic meters over 15 years, up from the 64 bcm under the original agreements.

The amount to be sold from Israel’s Leviathan field will nearly double to 60 bcm of gas over 15 years. However, exports from the nearby Tamar field will be reduced to 25.3 bcm from 32 bcm over the same period.

One source in the Israeli energy industry told Reuters that the estimated value of gas was now $19.5 billion, $14 billion from Leviathan and $5.5 billion from Tamar. The price will be linked to the price of Brent crude but also includes a floor price.

The final agreement between the two sides will take place when the majority of regulatory approvals are in place.

The news sent shares of the two Israeli Leviathan partners soaring – Dekel Drilling rose by 8.9% to 8.84 shekels (2.53) and Ratio by 9.1% to 2.49 shekels in late trading on the Tel Aviv Stock Exchange. Shares of Tamar Petroleum and Isramco, which are partners in the Tamar field, rose 7.3% to 9.56 and 2.1% to 62 agorot, respectively.

In New York, shares of Noble, which has stakes in both fields, was up more than 2% to $21.83 in premarket trading.

“The amended agreements for exporting gas to Egypt we reported today … again prove that there exists strong demand in Egypt for Israeli gas. The demand is expected to continue to grow in the coming years,” Delek Drilling CEO Yossi Abu said.

“The supply flexibility between assets will enable Tamar to continue producing at high rates, while Leviathan grows rapidly toward its initial capacity,” added David Stover, Noble’s chairman and CEO.

The amended agreement follows an accord reach last year under which the partners in Leviathan and Tamar agreed to sell $15 billion worth of gas to Egypt in what Israeli officials called the most significant deal to emerge since the neighbors made peace in 1979. 

Buyer Dolphinus Holdings will sell the natural gas to large industrial and commercial consumers in Egypt.

Under the amended deal, exports will begin on January 1 and continue through 2034. In the first half year of 2020, Leviathan will ship 2.1 bcm, in the second half 3.6 bcm. The figure will then rise to 4.6 bcm in each of the next two years and 6.7 bcm a year thereafter.

The companies had initially hoped commercial exports would begin in 2019.

Barclays analyst Tavy Rosner said the announcement was “another sign of Israeli gas attractiveness,” adding that he saw a potential upside of 23.8% to 87% in the share prices of local exploration and production companies, depending on the share.

Meanwhile, Israeli antitrust authorities gave approval Wednesday for Noble and Delek Drilling to take a stake in East Mediterranean Gas Company, which controls the undersea pipeline transporting natural gas to Egypt. 

However, the business concentration committee conditioned its approval on the price of exported gas being equal to or higher than its price in Israel. Abu said the first Leviathan gas would begin to reach the Israeli market this quarter.

Noble and Delek Drilling have also partnered with Egyptian East Gas Company in a venture called EMED, which agreed around a year ago to buy into the EMG pipeline.

Delek Drilling said EMED has delivered $370 million and expected to deliver the remaining balance for a total of $520 million payment in the coming days ahead of the completion of the EMG transaction and pipeline performance tests.

The Tamar and Leviathan partners have also agreed on the allocation of capacity in the pipeline, Delek Drilling said.