A Look at Eastern Mediterranean Gas in Light of the Leviathan Deal
A non-binding Letter of Intent (LoI) was signed on November 24, 2015 between the Leviathan partners and Dolphinus Holdings Limited for the export of natural gas from the Leviathan Project to Egyptian consumers, according to a report published by Avner Oil Exploration Limited Partnerships and Delek Drilling Limited Partnerships on November 25, 2015. In the agreement, the parties agree to pursue negotiations for the supply of natural gas from the Leviathan natural gas field offshore Israel to the Egyptian domestic market via the existing gas pipeline operated by East Mediterranean Gas Limited.
The Letter of Intent includes the conditions for the potential transaction that will be subject to regulatory approvals. The estimated scope is the supply of 4 BCM (billion cubic metres) per annum for a period of 10-15 years using the transmission system of Israel Natural Gas Lines Ltd ("Natgaz") to Ashkelon and from there to the local market in Egypt using the existing pipeline operated by EMG. The price will be linked to the price of barrel of Brent oil and includes a floor.
Israel has initiated efforts to speed up the process leading to the signing of the natural gas framework that will force Delek and Noble to sell their shares in the Tanin and Karish fields within 14 months of the implementation of the framework. The country plans to encourage international investors to commence new explorations in Israel’s Exclusive Economic Zone. Israel is eyeing Egypt’s LNG plants to export its natural gas in a liquefied form to export markets, according to the country’s Minister of national infrastructure, energy and water Yuval Steinitz.
Israel and Cyprus have been engaged in talks for the joint exploration of their respective natural gas fields. The development of Cyprus’ Aphrodite field, estimated at 4.54 Tcf and discovered by Noble Energy in 2011, has been awaiting a final investment decision regarding its commercial development. The island was hoping for Eni’s successful drilling in Block 9 of Cyprus' EEZ, but the Italian company’s two attempts came up dry. Eni’s great success in Egyptian waters with the discovery of the Zohr field in close proximity to Cypriot waters and estimated at up to 30 Tcf of natural gas, has given the Cypriot Government hope that future exploratory efforts by Total, Noble and Eni off the island´s coast may be successful.
Egypt is an attractive destination for both Cypriot and Israeli gas. Israel and Cyprus could choose to collaborate and use Egypt's export facilities as a route towards far-reaching markets but recent tensions arose when Israel declared that an important part of the Aphrodite field lies in its waters. The announcement coincides with the start of the negotiations between the neighbouring countries to achieve a unitisation agreement.
Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. Karen is also a co-founder of the Lebanese Oil and Gas Initiative (LOGI). She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat