Not waiting around: Why Egypt and Jordan are slowly turning away from Israeli gas

Published February 18th, 2015 - 08:50 GMT
Al Bawaba
Al Bawaba

While the regulators in Israel are taking their time about making decisions about the fate of the Leviathan natural gas reservoir partnership, the regional gas market is beginning to eye deals that would cost Leviathan momentum. Egypt and Jordan yesterday announced that they planned to sign memoranda of understanding to import gas from other countries, and Norwegian company BW Offshore, which was to have supplied the production equipment to Leviathan, has suspended its work, and is laying off the project's employees.

In 2014, the Tamar and Leviathan partners signed letters of intent with Jordan and Egypt for exporting 235 BCM of gas - about a fifth of Israel's gas reserves. These countries, however, which need cheap energy, can also import gas from other countries.

"Egypt and Jordan are in great need of natural gas, but there is other natural gas in the region besides Israeli gas. The world won't sit still and wait for Leviathan," says Energy, Financial & Strategic Consulting CEO Amit Mor. "It is therefore necessary to end the regulatory dispute over Leviathan in order to develop the field quickly, above all in order to provide a strategic solution for the Israeli economy."

Energy sector sources, including Mor, assert that if regulators in Israel do not reach agreement soon, and development of the Leviathan field is delayed, Leviathan "will lose momentum," and development of the reservoir will be jeopardized. "Development of Leviathan will be financed mainly through the deal with British Gas, which has a liquefaction facility in Idku," Mor says, adding, "But if development of the reservoir is delayed, British Gas may already reach agreement with Egypt for development of other fields in its territory. In such a case, the Israeli government may have to help pay for development of the Leviathan reservoir."

Egypt and Jordan going into high gear

The Egyptian Prime Minister's Office yesterday announced that Egypt had signed a letter of intent for energy cooperation with Cyprus. Sources inform "Globes" that Delek Drilling Limited Partnership (TASE: DEDR.L) CEO Yossi Abu and Noble Energy business development manager Niv Sarne met yesterday with the Cypriot Minister of Energy in order to formulate an agreement to export gas from Cyprus to Egypt. According to the Egyptians, the parties intend to sign a letter of intent within six months for importing gas to Egypt from the Aphrodite reservoir in Cyprus. The reservoir, of which Noble Energy owns 70% and Delek Group Ltd. (TASE: DLEKG) 30%, the only one discovered in Cyprus so far, contains 125 BCM of gas, a relatively small amount that does not justify development for either consumption by the local economy or exporting as liquefied natural gas (LNG). The only commercially viable possibility for the field is therefore direct export via pipeline to a nearby country.

The letter of intent slated for signature by Egyptian national gas company Egas and Cypriot national gas company CHC will not include the commercial terms in the agreement, such as the price of the gas, but it will enable the parties to consider the technical aspects of the deal, for example how the gas can be transported directly from Aphrodite to Egypt. The parties will also be able to discuss with third parties - for example British Gas and Union Fenosa - the possibilities for liquefying the gas imported from Cyprus. In addition to Egypt, Jordan is also going into high gear, and Jordanian Minister of Energy and Natural Resources Mohammed Hamed said that a letter of intent was likely to be signed in the coming days for importing gas from the Marin reservoir, located 35 kilometers off the coast of the Gaza Strip. This reservoir, discovered in 2000 and owned by British Gas (60%), CCC (30%), and the Palestinian Authority (10%), contains 32 BCM of gas.

The Jordanian economy is expected to import 1.5-1.8 BCM of gas annually. Only last September, Jordanian electric company Nepco signed a letter of intent with Noble Energy, the operator of the Leviathan reservoir, under which the Leviathan partnership is to supply 45 BCM of gas spread over 15 years as part of an estimated $15 billion agreement. The supply of gas to Jordan was to have begun as soon as development of Leviathan is completed. Last month, however, given the uncertainty in Israel, Jamal Gamouh, president of the Energy Committee of the Jordanian House of Representatives, said that until the situation becomes clear, no deal will take place.

The employees were sent home

Norwegian company BW Offshore, a supplier for the Leviathan reservoir production and equipment facility, has announced that it is suspending work on the facility. In the company's summary for 2014, BW CFO Knute Saethre confirmed the suspension, saying, "We have been working on the project since October 2012, but the project has been suspended already since March, following the conflict between Noble Energy and the Antitrust Authority director general." He added that of the 160 workers in the project, half company employees and half external contractors, the external contractors had been fired and the company employees shifted to other projects.

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