Israel Regulator Approves For Delek, Noble Acquisition Of Egyptian Pipeline

Israel Competition Authority today authorized Noble Energy and Delek Group to acquire part of the natural gas pipeline between Israel and Egypt, which is owned by the East Mediterranean Gas Company (EMG). This approval is subject to three conditions: a commitment to swap deals by the partners in the Leviathan gas reservoir, a commitment by the pipeline owners to provide open access to the pipeline to all owners of other gas reservoirs, and an agreement by Delek Group and Noble Energy to reopen the operating agreement for the pipeline 10 years from now.

EMG, owned by Israeli businessmen, built the pipeline to transport gas from Egypt as part of a deal to supply Egyptian gas to Israel Electric Corporation (IEC). The 280-kilometer pipeline connects EMG’s facility in Ashkelon to the Egyptian gas network in the El Arish area in Sinai. The pipeline has been inactive since 2012, when it was shut down following a series of explosions.

Delek Group, Noble Energy, and a company owned by the Egyptian government are seeking to buy 39% of EMG’s share capital, plus the right to operate the pipeline for 10 years, with a 10-year extension option, for $519 million. Acquiring the pipeline is designed to facilitate regular supply of gas from the Leviathan and Tamar reservoirs to Egypt in the framework of agreements signed by the partners in the reservoirs with customers in Egypt.

“At the end of a thorough examination, the director general has decided to make approval of the deal contingent on conditions that will ensure that future imports of gas from Egypt will not be blocked, and that the Israeli reservoirs not owned by Delek Group and Noble Energy will also be able to export gas to Egypt through the pipeline,” the Competition Authority said.

“An examination of the merger showed that importing gas from Egypt to Israel is not economically feasible in the foreseeable future, and there is therefore no concern that Delek Group and Noble Energy will use the deal to prevent imports of natural gas from Egypt to Israel. At the same time, given the fact that the agreement extends many years into the future, and that the Competition Authority is unable to predict geopolitical and economic changes affecting the feasibility of importing gas from Egypt to Israel in the future, conditions were imposed that will ensure the feasibility of importing gas from Egypt to Israel insofar as this is possible.”

The Competition Authority explained that the undertaking to make swap deals will be used if an Egyptian supplier seeks to export gas to an Israeli customer. In such a case, Leviathan and Tamar will be obligated to supply the gas according to the agreement between the Egyptian gas supplier and the Israeli customer, while the Egyptian gas supplier will supply natural gas to the customer of Leviathan and Tamar in Egypt. The Competition Authority says that this condition prevents Delek Group and Noble Energy from using their holding in the pipeline to harm imports of gas to Israel, because the option of swapping gas saves the costs of using the pipeline, among other things.

Halperin also required the merging companies to bring the operating agreement up for reconsideration in 10 years’ time. If the circumstances are different in 10 years, and importing gas from Egypt to Israel becomes possible, the Competition Authority director general can adjust her decision to the circumstances prevailing then.

Halpern also imposed an open access condition requiring the pipeline owners to provide access to the pipeline to players in Israel who want to export gas to Egypt. This possibility is likely to motivate new players to enter the natural gas exploration market, thereby encouraging competition between the gas producers in Israel.