Israel to Export Natural Gas to Egypt in $15 Billion Deal

The lead partners in Israel’s largest gas fields said they signed a $15 billion export deal with Egypt, adding an economic dimension to what until now has been a security-focused relationship between two former regional rivals.

Noble Energy and Delek Drilling said they plan to supply around 64 billion cubic meters of natural gas over 10 years to Egypt’s Dolphinus Holdings from Israel’s Tamar and Leviathan reservoirs. The deal needs regulatory and government approvals in Israel and Egypt, they said.

The deal with Egypt follows an agreement with Jordan in 2016, putting Houston-based Noble and its Israeli partners on track to become regional exporters. Substantial obstacles still remain — including how to transport the gas to Egypt — but the agreement suggests Israel and its neighbors are bolstering ties as they seek to benefit from large discoveries in the eastern Mediterranean in recent years.

“This paves the way for further deals and cements Egypt as a regional energy hub,” Yossi Abu, Delek Drilling’s chief executive officer, said in a phone interview. “This will be an engine for both the Egyptian and Israeli economy alike. We’re proud to be part of this moment.”

The Tel Aviv Stock Exchange Oil & Gas Index jumped as much as 16 percent on Monday, the most on record.

“This is a joyous day,” Israeli Prime Minister Benjamin Netanyhau said of the deal. “This will put billions into the state treasury to benefit the education, health and social welfare of Israel’s citizens.”

Court Ruling

As Israel and Egypt strengthen security and energy ties, the idea of building an Israeli pipeline to Turkey may be losing favor. Israel has shifted its priorities to exporting to Egypt amid growing discord with Turkey, where President Recep Tayyip Erdogan has escalated his public denunciations of the Jewish state.

The Egyptian government had frozen talks on a gas deal after an international arbitration court ruled Egyptian companies must compensate Israeli electricity providers in a past deal that involved export of Egyptian gas to Israel. It wasn’t immediately clear if Monday’s announcement meant the two sides had resolved the arbitration case. EMG, which operates the pipeline that brought Egyptian gas to Israel, also is seeking damages.

It’s not clear how the deal fits into Egypt’s plans to export gas through its giant Zohr field. Discovered by Italy’s Eni in August 2015, Zohr has a target to pump 2.7 billion cubic feet of gas per day by end-2019. Russia’s state-owned producer Rosneft closed a deal in October to acquire 30 percent of the field, and BP Plc bought a 10 percent stake last year.

Delek has said that even when Zohr reaches full production it won’t be able to keep up with rising demand. The company noted Monday that Egypt changed its domestic law in September to allow private entities to sign agreements to import gas, and regulations were amended last week to implement the law.

Delek said it will begin talks with EMG over use of its pipeline. Another possibility could be to use an existing pipeline that connects the Israeli transmission system with the Jordanian one, they said.

Source: Bloomberg