The companies developing Israel’s largest natural gas fields agreed to increase supply to their Egyptian customer as part of a landmark contract to help meet growing demand in the most populous Arab country.
Partners in the Leviathan and Tamar offshore reservoirs, led by Israel’s Delek Group Ltd. and the Texas-based Noble Energy Inc., will send 85.3 billion cubic meters of natural gas to Egypt’s Dolphinus Holdings Ltd. over 15 years, according to a Tel Aviv Stock Exchange filing on Wednesday. That’s nearly 35% more than what was agreed on in 2018, when both sides signed a 10-year deal valued at $15 billion.
The Israeli gas will start flowing to Egypt at the beginning of next year, with the aim to gradually reach an annual capacity of almost 7 billion cubic meters from both pools by the summer of 2022. The parties further amended the original contract to remove any fluctuations in the amount of fuel to be delivered to Egypt.
The deal is set to strengthen economic ties between the two countries and give Israel a new export market for the gas it discovered in the eastern Mediterranean. It will also help Egypt capitalize on its own discoveries and position itself as an energy re-export hub on the doorstep of gas-hungry Europe.
Domestic demand in Egypt for natural gas will steadily rise about 30% over the next two decades, causing supply shortage within five years, according to Wood Mackenzie, a U.K.-based energy research and consultancy firm.
Controlling the Pipeline
While Israeli and Egyptian officials have touted this contract as a harbinger of bigger ones to come, the companies have been working for several years to remove the legal and operational impediments to their initial transaction.
Repeated militant attacks on the EMG pipeline have left the subsea corridor idle since 2012, resulting in several lawsuits between Israeli, Egyptian and other entities.
In a separate statement on Wednesday, Delek said the companies and their Egyptian partner East Gas Co. transferred more than 70% of the $518 million cost to buy a controlling stake in the cross-border pipeline that will facilitate this deal.
The change in pipeline ownership, expected this month, will give the companies exclusive rights to lease and operate the pipeline and more power to avoid disruptions in their dealings with Egypt.
Delek is examining ways to boost production capacity of Leviathan, Israel’s largest field, in order to service potential deals with companies such as Royal Dutch Shell Plc or Spain’s Union Fenosa SA, which own stakes in Egypt’s two liquefied natural gas plants.
While those options could significantly expand the market base for Leviathan, both avenues have been held up by legal or economic considerations.
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