Uncertainty Surrounding an Egypt-Israel deal
The giant Zohr discovery made by ENI in Egyptian waters in late August did not stop Egyptian companies from entering talks with the partners in Israel’s largest offshore fields for the purpose of importing gas from Israel’s 22 Tcf (Trillion Cubic Feet) Leviathan and 10 Tcf Tamar fields to the Egyptian domestic market. Egypt’s energy troubles are likely to be relieved once ENI’s Zohr field, estimated to hold up to 30 Tcf of natural gas, reaches production stage sometime around 2020. But Egypt’s needs for natural gas are pressing and growing by the day. Importing gas from the neighbourhood, namely from Israel and Cyprus, could offer an interim solution for Egypt until the country develops enough indigenous resources to satisfy its own domestic needs and re-enter the export market with the surplus.
For Cyprus and Israel, Egypt is an attractive customer, not only for its proximity - gas would reach Egypt from the two new natural gas producers via an existing subsea pipeline - but also because Egypt owns two liquefied natural gas facilities (LNG) export terminals that could allow Israel and Cyprus to reach lucrative far-reaching markets. Egypt has repeatedly reassured its two neighbours that despite having discovered a massive offshore field in its waters, it would still be looking to absorb gas from Israel and Cyprus. Since the discovery of their offshore riches, Israel and Cyprus have not yet reach the export stage, Israel delayed by domestic regulatory disputes and Cyprus held up by its slow offshore progress.
Despite Egypt’s appetite for regional natural gas, and Israel’s need to monetize its riches, a rising tension between the two countries may put an end to their gas talks and jeopordise future gas deals. In late November, a Letter of Intent (LoI) was signed between the Leviathan partners and Egyptian company Dolphinus Holdings Limited for the supply of 4 BCM (billion cubic meters) of natural gas per annum from the Leviathan field to the Egyptian market over a period of 10 to 15 years. Shortly after the positive development between the two neighbours, a decision by a panel of arbitrators from the Paris-based International Chamber of Commerce earlier this week declared Egyptian Natural Gas Holding Company and the Egyptian General Petroleum Corporation liable for the payments of $1.76 billion compensation to Israel Electric Corporation for halting gas supplies three years ago. The Egyptian Government ordered its two state-owned companies to freeze talks on importing Israeli gas. The freezing of the talks will last until at least after the appeal against the ruling, according to the Egyptian Government.
The new tension between Egypt and Israel might have a serious impact on the gas negotiations between the two countries. The decision to freeze the talks will however not affect the ongoing pourparlers between Egypt and Cyprus, according to a statement released by Cyprus’ Minister of Energy Yiorgos Lakkotrypis. Lakkotrypis said the Egyptian Prime Minister Ibrahim Mahlab called him on Sunday to tell him that Egypt is still interested in purchasing natural gas from Cyprus despite its most recent conflict with Israel. In 2011, Noble Energy made the Aphrodite discovery estimated at 4.54 Tcf of natural gas in Block 12 of Cyprus’ Exclusive Economic Zone. Noble is currently working closely with the Government to progress the development of Aphrodite. Noble submitted a Declaration of Commerciality and preliminary Field Development Plan for development of the Aphrodite field and is expected to reach a Final Investment Decision in the months to come. British Gas (BG) Group’s offer to buy 35% of the Aphrodite field off Noble Energy could also facilitate a Cyprus-Egypt deal given that BG operates the LNG plant at Idku in Egypt.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. Karen is also a co-founder of the Lebanese Oil and Gas Initiative (LOGI). She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat