Israeli media reports intended gas deal with Egypt

Israeli media reported on Tuesday the signing of an agreement between the Noble Energy's Tamar fields and the Spanish Union Fenosa Gas to supply gas from Israel to Egypt.

The letter of intent entails the supply of natural gas from Israel's offshore facility to Union Fenosa's gas liquefaction facility in Damietta, in northern Egypt. The contract is set to last for 15 years with a gross sales quantity of 2.5 trillion cubic feet of natural gas, an average of 1.1 to 1.3 billion cubic feet per year. The supply is the equivalent to US$20 billion, the Israeli Calcasit economy news portal reported on Tuesday.

The portal reported that gas will be supplied at a similar price to the one used in other regional export sales, such as those made to Jordan. “All parties are targeting to finalize a binding agreement within a period of six months, which will be subject to the receipt of regulatory approvals in Israel and Egypt,” Calcasit reported.

According to the Israeli website, a full contract is set to be signed within six months, while a similar arrangement will take place to supply Israeli gas to another Egyptian facility in the north coast, owned by British Gas.

Reuters news agency reported that the gas will be supplied from Israel to Egypt through a new subsea pipeline soon to be built, citing a source close to the Tamar fields. According to Calcasit, the transmission pipeline will stretch 300 miles south of the Tamar fields to the coast of Egypt.

The Tamar fields, 36 percent of which is owned by the Texas-based Noble Energy, are said to have estimated resources worth 10 trillion cubic feet of natural gas, after having been discovered in 2009.

Union Fenosa, meanwhile, has an 80 percent share in the Damietta gas liquefaction facility, which stopped exporting gas following shortages and rechanelling of supplies toward domestic consumption. The Egyptian General Petroleum Corporation and the Egyptian Natural Gas Holding Company (EGAS) have some of the remaining shares of the facility.

Calcasit quoted Keith Elliot, senior vice president of Noble Energy, as saying that the new deal “will not only enable substantial regional exports, but it will also increase the capacity for natural gas deliveries to Israel’s domestic market.”

In 2012, the Egyptian Natural Gas Holding Company terminated a 2005 gas deal to supply Israel with Egyptian gas, citing violations of contractual obligations and delays in payment from Israel. The termination came amid increasing criticism of supplying gas to Israel at cheaper prices than market rates and the exploitation of the deal by Mubarak regime figures to embezzle money. The pipeline supplying the gas to Israel through the Sinai peninsula has been repeatedly attacked by unknown militants.

The termination was initially met with objections from Israeli officials who said Egypt was hurting itself economically and politically by this move, adding that the termination undermines the peace deals between the two countries.

Under the 2005 agreement, Egypt was supplying 60 billion cubic feet of natural gas to Israel at a US$1.5 per million thermal units.

Meanwhile, Egypt has been facing dwindling power resources which have led to frequent power cuts and calls for alternative sources of energy.