Israeli Offshore Natural Gas Is Headed to Egypt

By Joshua Mitnick 

TEL AVIV--The owners of an Israeli offshore gas field said they plan to sign a 15-year deal to export 2.5 trillion cubic feet of gas to a Spanish-owned liquefaction facility in Egypt, marking the first agreement to export Israeli gas to a market with significant demand.

The partners in the Tamar gas reserve, which include Houston's Noble Energy, Israel's Delek Drilling and Avner Oil and Gas, signed a nonbinding letter of intent on Monday to supply the gas to Union Fenosa Gas's liquefied natural gas plant, which currently is underutilized because of an energy crisis in Egypt.

The politically sensitive deal is expected to be completed within six months and would revive Israeli-Egypt energy cooperation after Egyptian gas exports to Israel collapsed in 2011 following former President Hosni Mubarak's downfall. Egypt has been struggling with a surge in demand for its natural gas reserves, leaving Union Fenosa and BG Group with unused capacity at their LNG facilities in the country.

The letter of intent "represents a major milestone for our Tamar asset and is indicative of the strong regional demand for natural gas," said Noble Energy Vice President Keith Elliot in a statement on Monday.

A statement from Egypt's Oil Ministry said officials are seeking details on the deal from Union Fenosa, and that any agreement would need to get government approval and "serve the national interest of the country."

Egypt's previous agreement to export gas to Israel was politically unpopular in Egypt because of allegations that the price was too low. The supply also was severely interrupted following repeated attacks on the export pipeline in the Sinai Peninsula. Ties between the governments deteriorated after the downfall of Mr. Mubarak, but have improved after a Muslim Brotherhood government was unseated by Egypt's military and popular protests last year.

In recent months, the Tamar gas partners have signed deals to supply gas to the Palestinian Authority's power generation company and to Arab Potash Co. on the Jordanian side of the Dead Sea. Supplying Union Fenosa's LNG would open up an outlet to markets abroad with significantly larger energy appetites.

The Noble statement said the price for its gas would be similar to other export deals in the region and be linked to the price of Brent crude oil. A final deal would be subject to regulatory agreement of both the Israeli and Egyptian governments, the statement said.

Noble, Delek and Avner also own the rights to Israel's Leviathan field, which contains nearly twice the amount of Tamar's estimated 10 trillion cubic feet of gas and is also slated for export. The Israeli gas partners say there is regional interest in the reserves, and that they are exploring agreements to export the gas to Cyprus and Turkey.

Summer Said in Dubai contributed to this article

Write to Joshua Mitnick at [e-mail]

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