Giant Gas Find Favoring Egypt at Israel's Expense Sparks Selloff

(Bloomberg) -- A gas discovery in the eastern Mediterranean that has the potential to transform the region’s energy balance in favor of Egypt has thrown the outlook for stocks of Israeli producers into disarray.

Eni SpA’s 30 trillion-cubic-feet find off the North African nation’s coast sent a gauge of Israeli energy companies to the lowest level since March on Tuesday, after tumbling the most on record a day earlier. Meitav DS Investments Ltd. recommended investors sell stocks of companies involved in drilling at Leviathan, Israel’s largest gas field, while project partner Noble Energy Inc. fell as much as 6.9 percent in New York on Tuesday.

The new field, which Eni says is the biggest-ever in the Mediterranean, represents a setback to Israel’s vision to export gas for the first time to countries including Egypt, Jordan and the Palestinian territories. In contrast, production from the site -- about 37 percent larger than Leviathan -- may help Egypt bridge a gas shortage that has worsened since the so-called Arab Spring revolt in 2011 forced the country to start importing fuel.

“The energy balance in the eastern Mediterranean has shifted away from Israel and Cyprus towards Egypt,” Sir Michael Leigh, a senior fellow at Washington-based think tank German Marshall Fund, said by e-mail on Monday. “It certainly is very good news for Egypt. For Israel, at first sight, it is less good news, and will further complicate decision-making over possible exports of gas.”

‘Wake-Up Call’

Shares of Delek Group Ltd. declined 1.1 percent on Tuesday after plunging 12 percent in a Monday rout that sent shares of its Delek Drilling LP and Avner Oil Exploration LP subsidiaries down the most since 2001. Ratio Oil Exploration 1992 LP lost 26 percent in two days.

The time needed to develop the Egyptian field is four to five years, similar to the “most optimistic” forecast for Leviathan, according to Leigh.

The potential shift in Egypt’s fortunes threw light on debates within the Israeli government that have hindered the progress of Leviathan and Tamar, the nation’s two largest offshore gas fields. The regulations, pending approval by parliament and the economy minister, would allow Israel to export as much as 1.5 billion cubic feet a day by 2025, according to Barclays Plc. That’s more than half of Norway’s average shipments to the U.K.

“This is a wake-up call,” David Shrem, an energy analyst at Tel Aviv-based Sphera Funds Management Ltd., which manages about $1 billion in assets. “It is still early to say but there may be a scenario in which the Egyptian field may be developed before Leviathan.”

Potential Windfall

EFG Hermes Holding SAE, the Egypt’s biggest investment bank, forecast the field could yield $48 billion of revenue for the government. Egypt’s fiscal shortfall has exceeded 10 percent of gross domestic product every year following the popular revolt in 2011, with the International Monetary Fund projecting a gap of 11.8 percent in 2015. Egypt plans to use all of the natural gas discovered by Eni to meet domestic demand for more than 10 years, Hamdy Abdel Aziz, a spokesman for the country’s Petroleum Ministry, said Tuesday.

Egyptian gas exports fell by half in the two years after the uprising, before being halted entirely amid repeated militant attacks on the pipeline that fed the fuel to Israel and Jordan and as domestic consumption increased, U.S. Energy Information Administration data show.

The benchmark EGX 30 Index declined 0.4 percent on Tuesday after climbing 2.8 percent on Monday in one of the biggest rallies globally. Shares on the exchange trade at 9.2 times projected 12-month earnings, compared with a multiple of 12.7 for the benchmark TA-25 Index in Tel Aviv.


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