Egypt Gas Discovery Heats Up Israeli Debate Over Fuel Exports

31 Aug 2015 | Author: | No comments yet »

Egypt Gas Find Could Shake Up Israel’s Energy Plans.

Energy shares plummeted on the Tel Aviv Stock Exchange on Monday after the Italian energy group Eni said it had discovered the largest known natural gas field in the Mediterranean off Egypt, casting doubt about Israeli gas exports to the country. The stock exchange’s Oil and Gas index was down 7.6% to 1,010.13 points in late morning trading, with Avner down 11.5% at 2.39 shekels (61 cents), Delek Drilling off 11.4% to 12.54 and Ratio, down 14.8% to 29 agrorot, all in very heavy trading.

Zohr could hold a potential 30 trillion cubic feet of lean gas in place (5.5 billion barrels of oil equivalent in place) covering an area of about 100 square kilometres. The news came a day after Eni Chief Executive Officer Claudio Descalzi met in Cairo with Egyptian President Abdel-Fattah El-Sissi, the Egyptian leader’s office said. On Monday, Claudio Descalzi, CEO of Eni, told CNBC: “It is changing the game for Egypt…It is very important for Egypt, but also for the Mediterranean in terms of stability.” Descalzi could not give a timeline for when the gas might hit the market, but said developments would be quick as the gas field was in close proximity to Eni’s processing facilities. “It is close to the facilities so the time to market will be very good… that is part of our strategy to…continue to do our exploration in the mature area where we have a deep geographical knowledge and we can take advantage of our facilities and that will make the unit cost in terms of capital very positive,” the CEO said. “I don’t want to put a date now but it is a question of a few years to have production—then a full production, that will be a very quick fast track development,” Descalzi added.

First of all, the potential discovery could harm the chances of development of Israel’s own Leviathan field on time, because it was supposed to have relied on Egypt as a major customer for the gas. They have been negotiating long-term contracts to sell gas to customers in Egypt, but the deals have been held up by the policy debate in Israel over how the industry should be regulated.

During Egypt’s economic development conference in March the company signed heads of agreement with the Egyptian government worth $5 billion over a period of 4-5 years. In July, Egypt and Eni signed an update to the head of agreement reached in March, following the discovery of gas reserves of up to 15 billion cubic metres in Egypt’s Nile Delta region. Leviathan’s partners hoped to sign a 15-year deal to export gas to the British Gas facility in northern Egypt, which, lacking local gas, has been shuttered for a long time.

In June, it signed an energy exploration deal with Egypt’s oil ministry worth $2 billion following an memorandum of understanding signed in March during an investment conference, allowing the Italian major to explore in Sinai, the Gulf of Suez, the Mediterranean and areas in the Nile Delta. Egypt has been experiencing an energy crunch since the summer of 2008, but the energy sector took a blow following the 2011 uprising as arrears to foreign oil firms accumulated and production slowed.

Egypt’s energy demand is rising as the Arab world’s largest population grows, making the country more reliant on imports provided by Persian Gulf states. The partners in another Israeli offshore field, Tamar, also hoped to export about a quarter of their gas to Egypt’s other natural gas plant, owned by Fenosa Gas, in which Eni is also a 40-percent partner. The country garnered some $40 billion in energy deals during the development conference held in March as part of the government’s plans to boost an economy battered by more than four years of political upheaval. The latest discovery will contribute to Egyptian supply for decades, Eni said. “A find of this size should be enough to cover a lot of Egypt’s energy gap,” Robin Mills, a Dubai-based analyst at Manaar Energy Consulting, said by phone Sunday. “They’ll likely have to meet domestic needs first, before any export plans are discussed.

To close the latter deal, worth an estimated $15 billion, the cabinet approved a controversial benefits package, including an early permit to export the gas, which was key to the compromise agreement between the government and the field partners, Delek Group and Noble Energy. Earlier this year, the Italian firm cut its dividend and said it would cut investments by 17 percent in the 2015 to 2018 period. “Gas has a big future because of the environmental constraints. Italy is one of Egypt’s largest trading partners with $6 billion worth of mutual trading value in the 2013/2014 fiscal year, Egyptian central bank data shows. European shares fell on Monday, with Germany’s DAX and France’s CAC on track for their worst month in four years, plagued by sliding Chinese stocks and the threat of a U.S. rate increase as early as next month. As reported in TheMarker, the Foreign Ministry said Iran had expressed a willingness to fill the energy vacuum left by Egypt and become Jordan’s gas supplier, as well as Egypt’s supplier in the long term.

The Rome-based company already produces gas in Egypt and is a partner in a venture operating a gas liquefaction terminal at Damietta on the Mediterranean coast. The fact that this aspect was not presented was also surprising because Eni has been operating in Egypt since 1954, and recently joined the Egyptian government’s investment program in natural gas and oil exploration, signing an agreement in principle for investments of $2 billion. Israel’s National Security Council, also subservient to the prime minister, went even further, claiming – through chairman Yossi Cohen – that Egypt wouldn’t be able to supply natural gas to its shuttered northern facilities.

He also reiterated the urgent need to approve Israel’s export contracts. “The discovery in Egypt pulls the rug out from under the already weak reasons for invoking Clause 52 of the Antitrust Law for diplomatic and security reasons – first and foremost because the strategic alliance with Egypt requires urgent export of Israeli gas to Egypt,” MK Shelly Yacimovich (Labor) said Sunday. “It turns out that Egypt doesn’t need our gas, and the government must now produce a reasonable and sane plan without fabricated panic and imaginary security reasons,” she added. Clearly it is absolutely wrong that Israel imprison itself for a whole decade in draconian contracts at exorbitant prices.” However, Energy Minister Yuval Steinitz reiterated his position Sunday that Israel must approve the gas plan, because “the discovery of the field in Egypt is a painful reminder that while Israel was ‘asleep on its feet’ and delaying final approval of the natural gas plan and delaying further exploration, the world changed before our eyes, including implications for export possibilities.”

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