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    Commercially Sensible, Politically Sensitive

Summary

Potential gas deals between Israel and Arab neighbours are commercially sensible, albeit politically sensitive. Final agreements will be subject to approvals.

by: Karen Ayat

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Natural Gas & LNG News, Featured Articles, News By Country, , Israel, East Med Focus

Commercially Sensible, Politically Sensitive

After years of dependence on natural gas supplies from its Egyptian neighbour, Israel now finds itself on the other side of the table. The gas will flow from Israel’s Tamar field to Egypt in the same pipeline that historically delivered gas in the opposite direction. The Tamar partners said to be discussing the sale of 5 billion cubic metres (bcm) of gas over three years to private customers in Egypt.

The partners in Israel’s second largest discovery are also in talks to provide an annual 4.5 bcm of gas for 15 years to Union Fenosa Gas for its liquefied natural gas (LNG) plant in Egypt and a total of 1.8 bcm over 15 years to Jordan. The partners in the Leviathan, Israel’s largest field estimated at 21 Tcf, are also negotiating a deal with BG Group to export 7 bcm of gas a year over 15 years for their LNG plant in Egypt.

The planned sales of natural gas by Israel to Egypt find their explanation in Egypt’s severe need for natural gas and its unused LNG export terminals. The Arab neighbour had mismanaged its indigenous production of natural gas by committing to gas export deals with Israel and Jordan that harmed local consumption and led the government to dishonour the agreements. Now Egypt is suffering from domestic shortfalls at home and fears that electricity shortages will increase domestic unrest and create further political tensions.

Egypt’s export terminals also constitute an opportunity for Israel looking to market its gas in global markets. The termination of Israel’s talks with Australia’s Woodside was the confirmation that Israel does not have an immediate plan to construct its own LNG terminal and would rather opt for alternative export routes. Using Egypt’s LNG export terminals would allow Israel to reach global markets without having to embark in the costly and timely endeavour of building its own terminal.

Noble’s talks with Jordan’s State Owned Electricity Co. are also the indication that Israel will be seizing regional opportunities by supplying gas to thirsty arab neighbours. Jordan too suffered from the disruption in the flow of Egyptian gas and is now undergoing a severe energy crisis. Despite national plans to develop indigenous resources and diversifying the energy portfolio to include renewable and nuclear sources. the Kingdom needs immediate relief and importing gas from adjacent Israel would help ease a spiking energy bills suffering from expensive imports.

The potential deals between Israel and its Arab neighbours are commercially sensible, albeit politically sensitive. Final agreements will be subject to regulatory approvals from the authorities involved. However, looking at how Jordan announced the potential deal to its public as an agreement between Jordan’s state owned electricity company and an American company (Noble), and the sabotages to the pipeline transporting gas from Egypt to Israel in 2011, it is no guarantee at all that the deals will go through smoothly.

Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. 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