Israel gas supply deals to Egypt and Jordan draw closer

The companies investing in Israel’s offshore gasfields are negotiating major supply deals that could soon see the country export in large volumes via pipeline to neighbouring Egypt and Jordan, three people with knowledge of the talks said this week.

Acute gas shortages in Egypt and the country’s move from Islamist rule to a military regime less hostile to Israel – due to be cemented in next week’s election – have laid the groundwork for big exports of the commodity from Israel’s Leviathan gasfield, executives and analysts said.

US-based Noble Energy and Israel’s Delek are lead investors in the huge deepwater field off Haifa, which they say has 19tn cubic feet of discovered gas, and where they plan to begin work by end-2014 and export gas from late 2017.

Egypt and Jordan, which until recently relied on cheap Egyptian gas to fuel its economy, would be the first candidates for big pipeline sales from Israel, the people familiar with Noble and Delek’s plans said.For Egypt, which until recently itself exported gas to Israel, Israeli gas could be the cheapest source of supply and the quickest fix for its troubled gas export industry.Production at two LNG facilities has stalled as Egyptian authorities diverted gas to the domestic grid. Power cuts have hurt Egyptian companies and fed public discontent ahead of next week’s election, which is expected to confirm Abdel Fattah al-Sisi as president.On May 5, Noble and Delek signed a letter of intent to export up to 2.5tn cubic feet of gas over 15 years from Israel’s smaller Tamar field to the LNG plant in the Nile Delta city of Damietta, operated by Unión Fenosa Gas, a joint venture between Spain’s Gas Natural and Italy’s Eni. Noble said that it expected that to result in a binding agreement within six months.“In Egypt, the return of military rule has facilitated old links with Israel,” said Catherine Hunter, a researcher specialising in north Africa and the eastern Mediterranean with IHS, the consultancy. “There were good trade links between Israel and Egypt in the Mubarak era, including gas, so reversing that flow makes more sense under a military framework.”The FT has learnt that Noble and Delek are also in preliminary talks with Britain’s BG Group to restore production at an LNG facility it operates in Egypt. In January the company declared force majeure in Egypt because it did not have gas to run the plant.A person with direct knowledge of the talks said that a deal was under discussion similar to the proposed one with Unión Fenosa, but added that BG was “a little more sensitive” to what was happening in Egypt politically.Noble and Delek both declined to comment on their plans because of the political sensitivities surrounding the talks.“We are working with the government and other stakeholders on an acceptable situation in Egypt,” BG said, but declined to confirm or deny any talks with the Leviathan partners. “Before we make any further investments in the country, we would need to be confident the overall investment climate is improving.”In Jordan, Noble in February announced a $500m contract to supply gas over 15 years to Jordanian potash and bromine factories on the shores of the Dead Sea.

Before we make any further investments in the country, we would need to be confident the overall investment climate is improving– BG Group

The Leviathan partners are now talking to Jordanian officials about a much bigger, longer-term export agreement that could see Israel supply the country with up to 3 to 4bcm of gas per year, the same amount it used to buy from Egypt.Offsetting the Middle East’s demand for cheap gas are cultural sensitivities around buying anything at all – much less a vital natural resource – from Israel because of its occupation of Palestinian lands.Israel has peace treaties with both Egypt and Jordan and discreet political and security consultations with both countries, but antipathy toward Israel among their population is widespread. Abut half of Jordan’s population are Palestinians.When the Unión Fenosa Gas supply deal was announced, Egypt’s oil ministry said it would only proceed if it “realises high added value for the Egyptian economy”.The same sensitivities apply to Turkey, where Noble and Delek have been talking to a consortium of potential corporate customers about a major supply deal that would see construction of a new undersea pipeline. Turkey and Israel have yet to restore full diplomatic relations after Israel’s fatal storming of a Turkish ship heading for the Gaza Strip in 2010.The financial Times

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