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



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.

(Bloomberg) -- 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 former regional rivals.

Noble Energy Inc. and Delek Drilling-LP said they plan to supply around 64 billion cubic meters of natural gas over 10 years to Egypt’s Dolphinus Holdings Ltd. from Israel’s Tamar and Leviathan reservoirs. The deal needs regulatory and government approval 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 economies alike. We’re proud to be part of this moment.”

Barclays Plc analyst Tavy Rosner shared Abu’s optimism. The Dolphinus deal is key to unlocking further business for Israeli energy companies, potentially including agreements with Royal Dutch Shell Plc, which operates the liquefied natural gas plant in northern Egypt, Rosner wrote in an emailed note to clients. 

Israeli gas shares hold “significant upside potential” -- as much as 50 percent, he added. The Tel Aviv Stock Exchange Oil & Gas Index jumped 19 percent after the deal was announced Monday, the most on record.

“This is a joyous day,” Israeli Prime Minister Benjamin Netanyahu 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 strengthens security and energy ties with Egypt, the appeal of building a pipeline to Turkey may be fading. Israel has shifted its priorities amid growing discord with Ankara, where President Recep Tayyip Erdogan has escalated his public denunciations of the Jewish state, two people familiar with the matter told Bloomberg earlier this month.

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

Executives at Dolphinus couldn’t immediately be reached for comment.

It’s not clear how the new deal fits into Egypt’s plans to export gas from its giant Zohr field. Italy’s Eni, which discovered the field in August 2015, aims to pump 2.7 billion cubic feet of gas per day from Zohr by end-2019. Russia’s state-owned producer Rosneft PJSC 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.

With assistance from Filipe Pacheco, Alisa Odenheimer, Ahmed Feteha and Tamim Elyan. To contact the reporters on this story: David Wainer in Tel Aviv at dwainer3@bloomberg.net; Yaacov Benmeleh in Tel Aviv at ybenmeleh@bloomberg.net. To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net Michael S. Arnold.



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