Initial investment in Eni mega gas field in Egypt about $3.5 billion: EGAS

31 Aug 2015 | Author: | No comments yet »

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

Israel’s hopes of becoming a natural gas export powerhouse have sustained a blow from an enormous discovery of gas off the coast of Egypt. 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.Milan – Italy’s Eni is open to selling a stake in its “supergiant” Zohr gas field discovery off Egypt, its chief executive said, as the state-controlled energy company looks for funds to bankroll development without sacrificing dividends.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.

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. Italian oil group Eni, which , stated the discover was sufficient to provide Egypt with fuel for many years, in a serious increase to the nation’s struggling financial system.

The Zohr Prospect is estimated to hold 30 trillion cubic feet of gas, roughly equivalent to the combined amount in Israel’s two large offshore fields, Tamar and Leviathan. 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.

Israeli Energy Minister Yuval Steinitz cited the Egyptian gas find to criticize opponents of a government plan designed to resolve regulatory disputes over the nation’s gas fields and promote fuel exports. 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. Eni stated it might fast-track the event of the invention to start manufacturing as quickly as attainable. “This historic discovery will be capable of rework the power state of affairs of Egypt through which we now have been welcomed for over 60 years,” stated Claudio Descalzi, Eni’s chief government.

It has already sold part of its gas discovery in Mozambique and is seeking to sell another 15 percent. “It’s an open door to give value and solidity to Eni’s balance sheet,” Descalzi said in an interview published on Monday by Italian newspaper La Repubblica. “But it will not be a necessary outcome. Critics of the planned regulation say it allows energy companies to charge Israeli consumers too much by damping competition; some object to planned exports. “This is a painful wake-up call about the folly of all the regulators concerning the gas issue,” Steinitz told Israel Radio. 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. In addition to being the most important ever fuel discovery within the Mediterranean, Eni stated the Zohr area “might grow to be one of many world’s largest natural-gas finds”.

Egypt has been able to spur new gas exploration by offering companies a stable regulatory environment, while Israel has been “missing the boat” on developing its own finds. It has operated in Egypt for more than 60 years through its Egyptian subsidiary IEOC and is one of the main energy producers in the country, with a daily output of 200,000 barrels of oil equivalent. 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. 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. 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.

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. 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.

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. The plan, 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, Barclays Plc has said.

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. The plan’s opponents say the Egyptian discovery reinforces their arguments against the government’s proposal, including its export aims and the prices it sets for domestic gas sales. “This doesn’t yet close the door on exports to Egypt,” said Amir Foster, partner at Foster Consultancy Group and adviser to Israeli natural gas companies. “The demand there is something like 25 percent more than what they can currently produce.” 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. Verified email addresses: All users on Independent Media news sites are now required to have a verified email address before being allowed to comment on articles. The window for the development of the field is still open, even if more challenging. “The drops in the shares emphasize the heavy price paid to bureaucracy and disorderly decision-making,” Idan Azoulay, a money manager at Epsilon Investment House Ltd. in Tel Aviv, said by e-mail. “There could be long-lasting effects on the local macro picture, starting from an impact on the shekel, inflation and the profitability of the manufacturing sector.

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.”

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