Pipe Dream? Israel Doesn't Have Capacity to Export Gas to Egypt as Promised

Gas must first run through domestic network, which can’t carry enough gas to meet contractual requirements

Dedicating a section of the national pipeline.
Itamar Cohen

Israel’s domestic pipeline network doesn’t have the capacity to carry all the natural gas the Tamar and Leviathan partners have contracted to sell to Egypt, TheMarker has learned. The partners are scrambling to find a solution before exports are supposed to begin in the first half of 2019.

Knowledgeable sources told TheMarker that the critical length of pipeline belonging to Israel Natural Gas Lines – the company responsible for operating 650 kilometers of pipeline inside Israel – is currently capable of carrying between two and three billion cubic meters of gas annually.

But under two separate agreements, the Tamar and Leviathan partners, led by Israel’s Delek Group and Texas-based Noble Energy, are committed to selling 3.5 BCM annually and under certain conditions could sell more to the Egyptian company Dolphinus Holdings.

Delek and Noble agreed in September to buy a stake in the EMG pipeline that links Israeli suppliers with Egyptian customers to ensure delivery. But neither gas field is linked directly with the EMG pipeline and right now has to deliver the gas first through the INGL network.

Delek Drilling, a unit of Delek Group, told the Tel Aviv Stock Exchange last week that it had begun negotiations with INGL to use the domestic pipeline network and noted that the “parties were conducting preliminary examinations of technical issues.” But the announcement didn’t address any capacity issues.

On Sunday, Delek Drilling and Noble responded that they remained optimistic. “As we have gotten to know the exact numbers and true data, we have no doubt that the Dolphinus agreements will be fully implemented and that gas will be delivered to Egyptian as it is supposed to,” a spokesman said.

Under the first of the two contracts, worth a combined $15 billion, Leviathan is committed to selling Dolphinus 3.5 BCM starting at the end of 2019. The second is with the Tamar partners, which agreed to supply gas on an “interruptible” basis, meaning only if there is capacity to deliver it. The contract, which is for a similar 3.5 BCM, carries an option to become a firm contract anytime up to December 2021.

Tamar has long been in production and will begin delivering its gas to Dolphinus in the first half of next year. However, it will have to stop exports once Leviathan comes on line, unless a solution to the capacity problem is found.

One option is to send some gas through another length of the INGL network to the Pan-Arab pipeline, which connects to EMG. Others are to widen the existing INGL pipeline, build a second parallel pipeline, or build an undersea pipeline.