Egypt has good reasons to buy Israeli gas

Abdel Fattah el-Sisi photo: Reuters

Egyptian President el-Sisi: Egypt will buy gas from all eastern Mediterranean gas fields.

The signing of an agreement earlier this year for the sale of natural gas by Israeli company Delek Group Ltd. (TASE: DLEKG) to Egyptian company Dolphinus Holdings seems somewhat odd, given the discovery of huge gas field in Egyptian territorial waters. The agreement is for 10 years, and it is not clear what Egypt's interest in it is, if production of large amounts of Egyptian gas starts within a few years.

As if that were not enough, Egyptian President Abdel Fattah el-Sisi was quoted as saying that Egypt would sign agreements in the coming years to buy gas from all of the gas fields in the eastern Mediterranean Sea. Talks on such agreements have reached an advanced stage with Cyprus and the companies active in the marine gas fields in Cypriot territorial waters. Reports in the Egyptian media say that there are indirect contacts mediated by Saudi Arabia for a similar agreement with Lebanon.

Amir Foster, who heads strategy and research at the Association of Oil and Gas Exploration Industries in Israel, says that one reason is politics - competition over status with Turkish President Erdogan, Egypt's bitter rival, which controls the land passage to Europe.

Foster adds another no less important and especially practical reason - concern about a future shortage. Consultants McKinsey & Co. conducted an assessment for Egypt, including analysis of gas production from the existing and new Egyptian fields in the coming years. The company found that production from the existing fields would fall off sharply starting in 2020. For the new fields, gas from the Zohr fields will compensate for declining production in the existing reservoirs in the early years, but afterwards, this will also be insufficient. In 2030, total production from Egyptian fields will fall below 50 BCM a year, compared with more than 60 BCM at present.

Egyptian concern is justified. The Egyptian economy has developed rapidly under el-Sisi. One of the major projects that he is leading is a rapid transition from oil to gas, which is both cheaper and more environmentally friendly. Three gas-fired power plants built by Siemens, among the largest in the world of their type, were recently commissioned in Egypt. These stations alone will need 15 BCM of gas a year, a quarter of current Egyptian gas production.

Following the discoveries of gas fields in Egypt, giant gas liquefaction facilities were built on the assumption that Egypt would be a leading gas exporter. Today, these facilities are working at minimal capacity, to the dismay of the international energy companies that invested so much in their construction, because the vast majority of Egyptian gas is being kept for local consumption.

El-Sisi's vision is to make Egypt the largest gas industry center in the eastern Mediterranean - production, liquefaction, import, and export - and he is trying to get Egypt's hands on as much gas as possible. This means that the Israeli gas fields have a hungry, available, and nearby customer that could render infrastructure costing many billions for laying an undersea pipeline from Israel to Europe unnecessary. Israel nevertheless continues its advocacy of this pipeline, because of both regional instability and a wish to avoid putting all of its eggs in one basket.

Even if an arrangement is reached in Gaza, it will not last long

Prime Minister Benjamin Netanyahu explained this week the principles of the arrangement and its underling logic to political correspondents. One of the main arguments is economic - step-by-step progress in economic gestures in exchange for the other side holding its peace.

Last Wednesday, Israel extended the fishing area in the Gaza Strip to nine nautical miles. The diesel fuel that Qatar is paying for is reaching the power stations in the Gaza Strip and providing 6-12 hours of electricity a day - a real luxury in Gaza Strip terms.

The residents of the Gaza Strip believe that in the framework of this arrangement, Israel may allow workers from the Gaza Strip to enter Israel in the same way as workers from the West Bank. At this stage, opposition from Israel's security forces is preventing this, but a military source told "Globes" that it was possible that in the framework of a general arrangement, a pilot program could take place that would allow the entry of a small number of workers under tight supervision. The source added that when workers begin entering, it will add another means of pressure on Hamas.

Reports say that Netanyahu is considering allowing Qatar to transfer money to the Gaza Strip to pay salaries for Palestinian Authority (PA) workers there, after PA chairperson Mahmoud Abbas stopped the flow of cash for this purpose months ago. Netanyahu and international parties realize that the economic pressure over the past 18 months has failed to achieve the desired results.

But, and this is a big but, even if an arrangement is reached including a long-term lull, the current situation in which a terrorist organization controls the territory on our southern border guarantees a renewed flareup - if not in a few months or the coming year, then not long afterwards.

Published by Globes, Israel business news - en.globes.co.il - on November 5, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Abdel Fattah el-Sisi photo: Reuters
Abdel Fattah el-Sisi photo: Reuters
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