Energy Firms in Talks to Sell Israeli Gas to Egypt

Source: The Wall Street Journal 2/19/2014, Location: Africa

Israel's recently discovered offshore natural gas is generating momentum for politically important supply deals that could alleviate energy shortages in Jordan and Egypt.

The drilling consortium led by Israel's Delek Group Ltd. and Texas-based Noble Energy said it signed a deal to supply gas to chemical companies in Jordan, marking Israel's first energy export deal and bolstering ties between the neighboring countries.

The same offshore drilling group is holding initial talks on a much larger supply deal with Egypt, people familiar with the matter said.

Drillers announced two Mediterranean finds in recent years with some 650 billion cubic meters of gas. Flush with energy reserves that could last for decades, Israel has been considering exports to several countries in the eastern Mediterranean including Cyprus and Turkey.

Despite the modest size of the deal with Jordan, it has important geopolitical implications. It was the focus of talks between King Abdullah and Prime Minister Benjamin Netanyahu with U.S. involvement, analysts said. A spokesman for Mr. Netanyahu decline to comment and Jordan's oil ministry couldn't immediately be reached for comment.

Jordan and Egypt are strategically important Arab neighbors where governments are eager for access to cheap sources of imported gas. But they must grapple with public opinion that opposes normalizing relations with Israel.

For Israel, improving relations with Jordan will be important as the U.S. tries to advance Israeli-Palestinian peace negotiations. Jordan will be directly affected by the deal: It shares a border with the West Bank and is home to the largest population of Palestinian refugees.

"Given the volatile political situation in the region, the very fact that two neighboring states could enter into this sort of contract is important. It is a confidence-building measure for both sides,'' said Oded Eran, a former Israeli ambassador to Jordan and a fellow at the Institute for National Security Studies, an Israeli think tank. He said the gas deal has no direct impact on the peace negotiations.

"But the very fact that it went through increases Israeli confidence that there is a partner on the other side,'' he said. The potential deal with Egypt would involve exporting up to eight billion cubic meters of gas a year from the Leviathan field. It would go to liquefied natural gas facilities run by the U.K.'s BG Group PLC in northern Egypt via an underwater pipeline or the existing Ashkelon-el-Arish line in the Sinai Peninsula, according to two Egyptian officials.

Importing gas from Israel is cheaper options for Egypt, which has been overwhelmed by local demand and can't meet foreign export commitments.

"The talks have been going on since August and there are a number of options on the table. But using BG's…plants is the best option at the moment and it would solve everyone's problems," said an Egyptian official who asked not be named.

A person familiar with the Israeli gas-drilling consortium said that an agreement with Egypt is unlikely before the country's presidential elections later this year.

Such an agreement would be a reversal from previous years when Egypt exported gas to Israel. But that deal prompted harsh public criticism in Egypt and was eventually undermined by repeated attacks on the pipeline by militants in the restive Sinai Peninsula.

The Jordanian deal, which could be worth as much as $500 million, calls for 1.8 billion cubic meters of gas to be supplied to Jordan's Arab Potash Co. and Jordan Bromine Co. over 15 years starting in 2016, according to Delek Drilling.

Jordan, which has been struggling economically with the fallout from unrest in the Arab world, increasingly needs natural resources that neighboring Israel can provide. But the monarchy has to contend with domestic pressure against normalization of ties. In recent months, the two countries signed a deal for Israel to supply water to Jordan.

For more information about related Opportunities and Key Players visit Egypt Oil and Gas Projects

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