Israel-Egypt Pipe dreams and net-zero agendas

Israel to link Leviathan gas field to Egyptian LNG plants runs contrary to green plans

THE Egyptian Petroleum Minister, Tareq El Molla, in a first visit to Israel on February 21 agreed with his Israeli counterpart, Yuval Steinitz, to work together toward an inter-governmental agreement for the construction of an offshore gas pipeline from the Leviathan gas-field to Egypt’s liquefaction facilities. This came as part of a discussion on ways to boost joint cooperation on energy security in both countries.

This visit was preceded by similar delegations of Greek and Cypriot leaders, intended to demonstrate renewed regional ally unity in the light of the forthcoming meetings involving Greece, Turkey, Cyprus and the EU, and US’ evolving role in the region.

The two ministers specifically referred to increasing “gas exports to Europe through the liquefaction facilities in Egypt, in light of the growing demand in Europe for natural gas.” But this runs contrary to the debate currently taking place in Europe about the future of natural gas, following commitments for a 55 per cent cut in emissions by 2030 and net-zero by 2050.

EU’s Taxonomy regulation on the establishment of a framework to facilitate sustainable investment has left natural gas completely out. Even though the debate is still raging, EU’s own projections show gas consumption declining by 25 per cent-30 per cent by 2030. This makes it difficult to see how Israel and Egypt expect to be able to succeed with plans to export LNG to Europe.

Without securing export contracts, it is difficult to see how a new offshore pipeline to supply gas from Israel to Egypt can attract the required investment to enable its construction.

Low global LNG prices present another challenge. Egypt has reopened the Damietta liquefaction plant, after eight years of lying idle, and hopes to expand LNG exports to global markets. But this will depend greatly on prices. After a spike in January, global spot prices have returned to low levels. For LNG to be delivered in April the price in Japan has dropped to $6.25/mmbtu and in western Europe down to $5.37/mmbtu. With the existing gas export agreement between Israel and Egypt priced at about $6/mmbtu, it is difficult to see how the economics would add up.

Another challenge is that with the increase in renewable power and gradual removal of fuel subsidies, Egypt has surplus electricity production, thus requiring less gas for power generation. As a result, the Zohr gas-field is producing below capacity because of lower demand. Eni plans to use some of this gas to feed LNG exports from Damietta.

Of course it goes without saying that should such a pipeline be built, it would diminish Cyprus’ already low chances of exporting Aphrodite gas to Egypt’s LNG plants.

In the meanwhile, Israeli, Palestinian, Qatari and European interests appear to have come together and they are at the point of agreeing to supply much-needed gas from Chevron’s Leviathan gas-field to Gaza by 2023.

On another positive note, the East Med Gas Forum (EMGF) comes into force on March 1. This could eventually become a catalyst for the development of regional energy markets, especially natural gas resources, to facilitate renewable energy integration.

Source: Cyprus Mail