Plans to start exporting gas from Israel to Egypt are on track but further steps are still needed before exports can commence, Egyptian Petroleum Minister Tarek El Molla said on Monday.
“Everything is agreed on ... countries [involved] have already given their blessings. There is no issue in that,” Molla told reporters during an energy conference in the United Arab Emirates’ capital Abu Dhabi. “It’s a multilateral deal, a gas deal and a pipeline deal, so it is a little bit a lengthy process. That’s why it is taking a little bit of time.”
However, the minister spoke about much smaller quantities of Israeli gas than appear in an agreement reached by Noble Energy and Delek Drilling, which control the giant Israeli offshore fields Tamar and Leviathan that will be supplying the gas, with Egypt’s Dolphinus Holdings.
Egypt will initially receive about 2 billion cubic meters of gas annually at the start, with supplies rising eventually rising to 5 bcm, according to a report by Bloomberg News. That compares with 7 bcm annually by 2020, with half of that amount subject to potential interruptions during peak times or under adverse conditions.
In July, Delek CEO Yossi Abu said the partners were looking to amend the agreement to reduce supply to about 4.5 bcm of non-interruptible gas next year and reach 7 bcm “later.”
Egyptian gas exports are critical to the Israeli industry, which is seeking foreign markets for Israeli gas. Supplies dwarf domestic needs and other local markets, like Jordan and the Palestinian Authority, are tiny.
Plans are afoot, in cooperation with Cyprus and others, to develop a pipeline to supply gas to the giant European market, but the technical obstacles and costs are prohibitive, leaving Egypt as the primary export market for now.
The Israeli gas will be supplied via the East Mediterranean Gas subsea pipeline following a landmark $15 billion export deal struck last year. An important step to beginning exports was taken earlier this week when EMG signed a deal to use a terminal belonging to Israel’s Europe Asia Pipeline Company.
In a report issued in response to Molla’s remarks, Ella Fried of Leumi Capital Markets said she was now assuming that the exports to Egypt and Jordan next year will be 5.3 bcm, instead of 7.5 bcm as she originally forecast. She said forecasted Jordanian exports remained unchanged at 3 bcm.
“A hit of 3 bcm in Leviathan’s cash flow is very small from a historical perspective, but because of the high discount rate for the field, which has not yet begun production, its weighing on cashflow margins in the first two years constitute approximately 3.5% of the field’s value,” she said.
She affirmed the Overweight rating on the Israeli energy sector.
Molla also said Egypt’s Damietta liquefied natural gas plant would restart operations as planned before the end of the year. The plant in northern Egypt has been idle for years due to lack of gas supply amid a dispute with Union Fenosa Gas, a joint venture between Spain’s Gas Natural and Italy’s Eni. Damietta is 80% owned by UFG, with the remaining 20% split evenly between the state-owned Egyptian Natural Gas Holding Company and the Egyptian General Petroleum Corporation.
Egypt’s gas production will rise by next year to around 7.5 billion cubic feet per day, from 7 bcf per day for the current year, the minister said, with priority to meet domestic needs rather than exports.
Exports still face obstacles. This week two nongovernmental organizations filed lawsuits asserting that the antitrust approval given in August to Noble and Delek to buy a 39% in EMG was unjustified. Meanwhile, the Thai company PTT Energy Resources, which had 25% stake in the EMG, has initiated a lawsuit in Egypt seeking $1 billion in damages due to Egypt’s decision to halt exports of gas to Israel in 2012 via the EMG pipeline. The pipeline is now being adapted to export Israeli gas to Egypt.
It’s not clear at this stage how the PTT suit will affect the export deal, if at all.
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