As part of a deal first revealed two years ago, Egypt began importing gas from Israel last week. The deal was signed between Egypt’s Dolphinus Holdings, a private company established two years ago by businessman Alaa Arafa, Texas-based Noble Energy, and Israel’s Delek Drilling with a view to importing 85.3 billion cubic metres (bcm) of gas worth $19.5 billion over 15 years.
Noble Energy and Delek Drilling are partners in the Israeli Leviathan and Tamar Fields, which will provide the exported gas. Israeli gas from the 22 trillion cubic feet (tcf) offshore Leviathan Field and smaller Tamar Field will flow to Egypt through the gas pipeline that links the port of Ashkelon to Al-Arish.
The deal is the first of its kind since the peace agreement was signed between Israel and Egypt 40 years ago, as noted by Israeli Energy Minister Yuval Stienitz in an interview on Israel’s public radio.
In a joint statement, Yuval and his Egyptian counterpart Tarek Al-Molla said the deal would enable Israel to transport quantities of natural gas to Europe through Egyptian liquefaction plants, enhancing Egypt’s growing role as a regional gas hub.
Importing gas from Israel is a sensitive issue in Egypt and the Arab world. Egyptian officials insist that there are no state bodies involved in the deal as it is a private-sector led agreement.
A similar $10 billion deal between a state-owned Jordanian company and Noble Energy to supply Jordan with Israeli gas from the Leviathan Field raised popular opposition in Jordan and the country’s parliament passed a law to ban imports.
An end-of-Mubarak-era deal to export gas to Israel triggered debate and resistance in Egypt. The deal was frozen after the popular uprising of 2011, and following the 25 January Revolution the pipeline was sabotaged by militias active in Sinai.
Freezing the exports subjected Egypt to international arbitration cases filed by the owners of the pipeline as a result of Cairo’s breaching supply agreements that resulted in an International Chamber of Commerce ruling obliging Egypt to pay $1.76 billion in fines.
However, the case was settled in 2018 in return for the government’s approval of the agreement between Dolphinus, Delek, and Noble.
This same pipeline, the Al-Arish-Ashkelon pipeline co-owned by the East Mediterranean Gas (EMG) Company, is now 39 per cent co-owned by EMED. Last year, Noble and Delek and Egypt’s EMG partnered in a venture called EMED to buy a 39 per cent stake in EMG for $520 million. Their being owners in the pipeline is believed to have facilitated the export deal.
While the imported gas will be liquefied and re-exported as liquefied natural gas (LNG) to Europe, it is not clear if all the imported gas will be exported or part of it will be used to supply industrial and commercial consumers in Egypt.
The deal is seen by many as Egypt’s first step towards being an energy hub, a real change in its fortunes from where it stood just five years ago.
While Egypt boasted huge natural gas reserves in the last years of former president Hosni Mubarak’s rule, exporting gas through the pipeline across northern Sinai via Al-Arish to Jordan and on to Syria, Lebanon and Israel, in the years following the 25 January Revolution the political upheaval and economic problems resulted in a decline in foreign currency receipts. The government was unable to pay the dues of foreign companies, which decided to stop delivering their production of gas.
As a result, Egypt’s natural gas production declined by 31 per cent from 2012 to 2016. To satisfy growing local demand, it stopped exports and diverted production to cover local needs in addition to becoming a net importer of gas.
It also acquired two floating storage and re-gasification units (FSRUs) in 2015 to process LNG imports from Russia and the UAE to cover local consumption. The shortage led to a power crisis that badly affected the country in the summer of 2015.
However, a series of large discoveries, including the Zohr Field, has helped Egypt to achieve self-sufficiency in natural gas and return to exports.
Since the discovery of Zohr Field, with estimated reserves of 30 tcf, in 2015, there has been a notable growth in Egypt’s natural gas supplies. The production from the field, the largest in the Mediterranean, more than tripled in the first half of last year to reach 11.3 bcm.
Egypt announced in 2018 that it had achieved self-sufficiency in natural gas. It produced 2.52 tcf of gas in 2018/19, the Egyptian Natural Gas Holding Company (EGAS) said in its annual report.
Moreover, last year witnessed 15 gas discoveries and seven gas development projects starting production. Fifty-six wells came on stream during the year, according to EGAS report.
Egypt’s gas production is projected to rise to 7.5 bcf per day by the end of the current fiscal year in June, raising surplus production to 1.5 bcf/d from 1.3 bcf/d currently, according to Reuters.
In addition to the extra supply, Egypt’s infrastructure and location qualify it to be a major regional hub and a link for energy trading between the Middle East, Africa, and Europe.
Egypt is the only country in the region to have gas liquefaction plants. Most of the current gas exports are liquefied at the Edku liquefaction terminal run by Egyptian LNG, a joint venture between the state-owned Egyptian General Petroleum Corporation (EGPC) and EGAS, as well as Royal Dutch Shell, Petronas, and Engie.
This has an annual capacity of 7.2 million tons. The second LNG plant is at Damietta and is co-owned by the Spanish Union Fenosa. It has been out of service since February 2013 after the government diverted gas exports to the domestic market.
The Damietta plant has an annual capacity of up to five million tons and can store 130,000 tons of LNG.
It is not only Israel that wants to use Egypt as an exporting terminal, since Cyprus and Egypt signed an agreement at the end of 2018 under which the two countries will collaborate to establish a direct underwater pipeline connecting the Cyprus Aphrodite Field to liquefaction plants in Egypt.
The construction of the pipeline will be financed by Noble Energy, Delek Drilling, and Shell.
While this deal has been threatened — as Greece said in December that Greece, Cyprus and Israel might build a pipeline to transfer gas from the Eastern Mediterranean directly to Europe — Oil Minister Tarek Al-Molla said in an interview that the lack of commercial feasibility of this project as well as the fact that the pipeline would have to pass through contested waters made it unlikely to succeed.
Egypt, Greece, Cyprus and Israel are members of the seven-member East Mediterranean Gas Forum formed in 2019 with the aim of creating a regional gas market serving the interests of its members by ensuring supply, optimising resource development, rationalising the cost of infrastructure, offering competitive prices, and improving trade relations, according to a statement by the Oil Ministry.
Other members of the forum include Italy, Jordan, and the Palestinian Authority.
*A version of this article appears in print in the 23 January, 2020 edition of Al-Ahram Weekly.