Eygptian gas deal may spur more Israeli offshore development

By Calev Ben-David
Bloomberg News

A deal to pipe natural gas from Israel’s Tamar gas field to Egypt may spur development of a larger reserve nearby, benefiting partners in both discoveries.

Noble Energy of Housto said earlier this month it signed a non-binding agreement of intent to sell offshore gas from Tamar to Union Fenosa Gas SA’s liquefied natural gas plant in Egypt, which will export it. Shares in Noble’s Israeli partners in Tamar — Delek Drilling LP, Avner Oil Exploration LP and Isramco Negev 2 LP — rose to record highs after an oversubscribed $2 billion May 11 bond offer to develop the Leviathan field to the north.

“This is the first step toward exporting Israeli gas outside the immediate regional markets like Jordan and the Palestinians,” Guil Bashan, an analyst at IBI-Israel Brokerage & Investments Ltd., said by phone. “The next step is likely to be the selling of gas from Leviathan to the other LNG plant in Egypt.”

Delek Drilling, Avner and Ratio Oil Exploration 1992 LP are partners with Noble in developing Leviathan.

Just two years ago, Israel was buying gas from Egypt, not selling. Egypt cut off the supply after the pipeline was bombed repeatedly, and political pressures may influence whether gas indeed does flow in the opposite direction.

“The more progress you see on the export story,” the more you see fewer risks and greater opportunities to expand the gas sector, said Roni Biron, a UBS AG analyst based in Herzliya, Israel.

Plans for Leviathan have stalled over Israeli regulatory issues and geopolitical complications, including whether to build an underwater pipeline to onetime ally Turkey to export the gas to Europe. Woodside Petroleum Ltd., Australia’s second- largest oil producer and a specialist in LNG production, has wavered over buying a stake worth as much as $2.6 billion, voicing concern over possible changes
in Israeli tax and regulatory policies.

The possibility of also linking Leviathan to Egyptian LNG plants may put “more pressure on Woodside” to reach a deal, said IBI’s Bashan. The partners now “have other options” besides Woodside of moving its gas, he said, including pipelines north to Turkey or west to Cyprus.

The Tel Aviv Oil & Gas Index has advanced 19 percent in the past year, compared to 13 percent for the benchmark TA-25 Index. Delek Drilling rose 37 percent in that period, Avner gained 38 percent and Isramco added 22 percent.

The discovery and development over the past four years of Tamar, which holds an estimated 10 trillion cubic feet of gas, and Leviathan, which holds almost twice as much, has provided Israel with enough fuel for both energy self-sufficiency and export.

Tamar began delivering gas to the Israeli market last year, and distribution deals have been signed with the Palestinian Authority and Jordan.

The agreement with Union Fenosa would send 2.5 trillion cubic feet of Tamar gas to the company’s underutilized LNG plant in Damietta, Egypt. A six-month target has been set for a final agreement.
Relations between Israel and Egypt have improved since the Egyptian army ousted Islamist President Mohamed Mursi last year and stepped up its pursuit of militants operating near Israel’s southern border.

“Right now there’s mixed political pressures in Egypt, but on balance, given the current reality, the government there is likely to approve it,” said David Wurmser, director of Delphi Global Analysis Group in Rockville, Maryland. “But in warning, the situation there is very dynamic, and the Egyptian government will face significant pressures over the next six-to-12 months that could change its calculations.”

Egypt has linked approval of the Tamar deal to the “resolution of all pending trade arbitration cases,” the Egyptian Oil Ministry said in a May 13 statement. Union Fenosa filed a complaint with the International Center for the Settlement of Investment Disputes after the Egyptian government stopped routing gas to the Damietta plant to keep it for domestic use.

Egypt is also pursuing a possible alternative deal to Tamar that would bring gas from Algeria to its idle LNG plants, the Interfax Natural Gas Daily reported.