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    Will Egypt Purchase Gas from Israel via Cyprus?



Egypt recently announced it might purchase natural gas from Cyprus. With Cyprus' exports not expected before 2020, will Egypt be purchasing Israeli gas instead?

by: Karen Ayat

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Natural Gas & LNG News, News By Country, , Cyprus, Egypt, Israel, Top Stories

Will Egypt Purchase Gas from Israel via Cyprus?

An LNG facility in Cyprus would allow the cash-strapped island to tap into a Europe looking to diversify its sources of supply and loosen Russia’s grip over it and an Asia that is more lucrative. Converting the natural gas finds in its exclusive economic zone into LNG will offer Cyprus the flexibility it needs to transport its gas. Noble Energy confirmed last month that is has successfully encountered recoverable natural gas in the Aphrodite field of Cyprus’ Block 12. The new estimates (of 3.6 trillion cubic feet (Tcf) 6 Tcf, with a mean of approximately 5 Tcf) are less than originally expected and do not justify alone the multi-billion LNG project. Noble Energy is determined to continue its exploration off Cyprus as it considers the results encouraging further activities. Total and ENI have both expressed interest in joining in the LNG project should their activities turn out successful. Both companies plan to start exploratory drilling off the island’s coast sometime in 2014.

Cyprus hopes that Israel - who recently approved a 40% export quota - will pool costs and join in the LNG project. Israel could divert the gas of its giant Leviathan field for exports through Cyprus and save itself the cost and hassle of building a local LNG. Cyprus and Lebanon have also been discussing future energy partnerships. The Lebanese neighbour has not launched its bidding round yet but it is believed that the Lebanese waters contain enough natural gas to allow the entry of Lebanon in the energy market as a net gas exporter.

Israel has not yet formulated its export policy. Although export quotas are now determined, the export routes remain uncertain. Noble Energy made a statement last month declaring that Israel will seek as a priority to export its gas to its immediate neighbours before considering further exports to Europe/Asia. The Hashemite Kingdom, Egypt and the Palestinian Authority are all in need of natural gas and in very close vicinity to Israel. Like Israel, Jordan has a history of reliance on Egyptian imports to satisfy its needs in natural gas. The deals were penned under President Mubarak. Things changed in 2011 when the toppling of Mubarak put an end to the sales of natural gas to Israel and substantially reduced the sales to Jordan. Egypt now has its own share of energy problems as it is currently facing an energy crisis with shortfalls in natural gas.

Israel’s new gas discoveries (with a 9 Tcf Tamar and a 19 Tcf Leviathan) would allow it to sell natural gas to its neighbours in need. With the Arish-Ashkelon pipeline connecting Egypt to Israel, the gas can simply flow in the opposite direction: from Israel to Egypt. Cheaper than liquified Qatari natural gas, Egypt would be able to buy Israeli gas through the pipeline at competitive prices. A problem remains: a new energy collaboration between the two countries is politically sensitive and apprehended by the public. The country’s leaders insist that Egypt will not be dealing with ‘countries’ but with ‘companies’ instead.

However, earlier last week, Egyptian minister of petroleum, Sharif Ismail, declared that Egypt was considering purchasing natural gas from Cyprus. With Cyprus not being in a position to export its gas before 2020, and with Egypt’s pressing natural gas needs, it is questionable whether Egypt will be purchasing Israeli gas with Cyprus acting as a facade. The LNG collaboration between Cyprus and Israel would be paving the way to broader alliances. Such a triangle would involve higher costs than a direct Israel-Egypt deal via the A-A pipeline, but would have the benefit of being politically...acceptable.

 Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean.  Email Karen on karen.ayat@gmail.com. Follow her on Twitter: @karenayat