Egypt’s Zohr gas re-writes Israel’s happy ending

31 Aug 2015 | Author: | No comments yet »

A gigantic natural gas discovery in Egypt means Israel has to find another customer for its gas.

Eni SpA’s discovery of a “super giant” natural gas field off the Egyptian coast will help boost the Italian company’s cash flow and “positively” affect its dividend, Chief Executive Officer Claudio Descalzi said. “This discovery is going to put us in a stronger position,” Descalzi said in an interview on Bloomberg Television on Monday.Egyptian stocks jumped the most in the world on Monday as investors speculated an offshore natural gas discovery would end a domestic supply shortage and earn the country billions of dollars in export revenues.

The find, which Descalzi said is the largest gas discovery in the Mediterranean Sea, will “make our position in terms of cash flow much more robust than before.” Revenue from the deposit, together with cost cutting and asset sales, will help Eni withstand oil prices that Descalzi sees trading at between $45 and $60 a barrel “for the next couple of years.” Eni’s shares gained as much as 4.4 percent in Milan on Monday, one day after it announced that the deep-water deposit in the Zohr Prospect in the Shorouk block may hold 30 trillion cubic feet of gas, equivalent to 5.5 billion barrels of oil. Companies drilling in Israel have planned to ship much of their product to Egypt, which, if its gas find is as large as thought, will not need the Israeli supplies. Egypt’s energy demand is rising as the Arab world’s largest population grows, making the country more reliant on imports from Persian Gulf states.

That’s 46 percent of the North African country’s current reserves and may translate into $48 billion of revenue for the government after Eni’s share is accounted for, according to a report by EFG-Hermes Holding SAE, Egypt’s biggest investment bank. Gas shortages have become more pronounced in the country since the 2011 Arab Spring, forcing the government to cut supplies to factories and implement rolling power outages. Last year, Noble Energy and Delek Energy, the two companies developing Leviathan, cut a $30 billion deal to ship gas to an Egyptian liquefied natural gas plant for onward export. Industrial companies, which have suffered from gas supply shortages, will be prompted to revive expansion plans within the next year, and “we expect foreign direct investment, whether green field or acquisitions, to recover sharply in sync,” he said. On the other hand, gas- and oil-producing countries often are reluctant to be transshipment points for neighboring nations, because the fuel competes with their own product.

Now Noble and Delek must either hope for greater demand from Jordan and the Palestinian territories, or that they can resurrect longshot plans to ship the gas through Turkey or Greece. It also is a blow to Israel, which, after decades of watching its Middle East neighbors getting rich from their oil, has been on the cusp of earning petro-dollars itself, with plans to start exports in 2018. The development will be “low cost” since it’s located near facilities Eni has in the area, and the company will pay for the project with its own funds, he 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. In a statement obtained by the Wall Street Journal, Steinitz said the Eni find “is a painful reminder that while Israel sleepwalks and dallies with the final approval for the gas road map, and delays further prospecting, the world is changing in front of us, including ramifications for export options.”

Eni is a partner in a plant at Damietta on the Mediterranean coast that chills gas into a liquid so the fuel can be sent by ship to buyers not linked by pipelines.

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