Latest gas deal reflects warmer Israel-Egypt ties

Prime Minister Naftali Bennett and Presdient Abdel Fatah Al-Sisi meet in Sharm El-Sheikh  credit: GPO, Kobi Gideon
Prime Minister Naftali Bennett and Presdient Abdel Fatah Al-Sisi meet in Sharm El-Sheikh credit: GPO, Kobi Gideon

Encouraged by the Abraham Accords, Egypt's President Abdel Fattah Al-Sisi has taken a strategic decision to deepen ties with Israel.

It was very moving this week to see Egypt's President Abdel Fattah Al-Sisi greeting Israel's Minister of National Infrastructures, Energy and Water Resources Karine Elharrar, when he arrived at the conference hall where the energy exhibition was taking place in Cairo, and thanked her for coming. The warmth of his behavior went far beyond a welcoming gesture to the visiting Israeli minister.

Egypt is in the midst of a process of adopting a new approach to Israel and is striving to deepen economic and commercial ties. This new approach can be attributed, among other things, to the major success of the Abraham Accords, which have helped promote economic deals signed between the Israel and Egypt themselves, and private companies from the two countries.

Another reason for the changed approach stems from Egypt's need for Israel to assist it with the US administration, which is pressing Cairo on human rights. In his gesture to Elharrar, Al-Sisi was showing his people and the Arab world that Egypt is prepared to open up to Israel, economically, for tourism, and in a range of other ways.

The energy sector has been over the past decade one of the areas in which deals between Israel and Egypt have flourished. Pipelines have been laid and sales agreements signed and also implemented. Now, as part of the new approach that Al-Sisi has adopted, these deals have been expanded to include Jordan. Sources close to the matter have told "Globes" that earlier this week, Chevron, which has a nearly 40% stake in Israel's offshore Leviathan gas field and a 25% stake in the Tamar offshore gas field, signed a deal with the Jordanian gas pipeline company Fajr. The agreement relates to conveying gas from Leviathan and Tamar via Israel to the Jordanian border and then southwards through Jordan to Egypt via Aqaba.

Full exploitation of the gas pipeline system's capability

The senior partner in the Leviathan field is Delek Drilling (45%) and Ratio (15%), while Chevron's other partners in the Tamar field are the UAE's Mubadala Petroleum (22%), Isramco (28.75%), Tamar Petroleum (16.75%) and others. There is an existing pipeline between Israel's Mediterranean coast and the Jordanian border near Beit Shean following a deal in 2016 in which Israel sells natural gas to Jordan.

From northern Jordan, the pipeline goes to Aqaba and then beneath the Red Sea to Egypt. The signing ceremony for the latest Israel-Egypt gas deal was attended earlier this week by Egypt's Minister of Petroleum Tareq El-Molla, Chevron Middle East president Clay Neff, Chevron Eastern Mediterranean managing director Jeff Ewing, Delek Drilling CEO Yossi Abu, and Fajr chairman Fouad Rashad Abbas.

The agreement represents the fulfillment of a clause in the original agreement signed between Egyptian company Dolphinus in 2018 for the purchase of Israeli gas worth $15 billion. That agreement set the option for increasing the annual amount of gas sold by Israel but the gas pipelines were operating to full capacity, providing a bottleneck that prevented the purchase of all the gas that Egypt needed.

The problem point in thew curent supply of gas to Egypt via Sinai remains between Ashkelon and Ashdod, and the hope is that Israeli government company Israel Natural Gas Lines will complete laying a new gas pipeline to relieve the congestion point by the end of 2023.

On the other hand, the pipeline system that conveys gas to the Jordanian pipeline at the Sheikh Hussein Bridge border point near Beit Shean can transport 6 billion cubic meters (BCM) annually, although only part of that is being exploited. From the data seen by "Globes," according to the agreement signed this week in Cairo, the amount of gas that will be conveyed to Egypt via the Jordanian pipeline will reach 2 BCM annually, while 3.5 BCM will eventually be conveyed from Ashkelon to El Arish. In other words, Israel will be selling Egypt 5.5 BCM annually.

The end-user of the Israeli gas is the Egyptian company Dolphinus, which is responsible for supplying the demand for natural gas to industry and the Egyptian energy grid, and conveying it to the liquefaction installation on Egypt's Mediterranean coast and from there to Europe. With the conflict between Russia and Ukraine, Europe is attempting to reduce its dependency on Russian gas, and demand is only expected to grow.

Delek Drilling CEO Yossi Abu told "Globes" that the sale of gas to Egypt via Jordan will allow maximum use of the natural gas infrastructure in Israel in terms of production and conveyance, and will strengthen the status of the Leviathan reservoir in Israel as the main energy anchor of the region. He said that Egypt represents the main energy center in the region in terms of domestic consumption as well as its ability to export to Europe and Asia as liquefied natural gas (LNG).

Israeli gas lighting up the homes of the region

Israel's Ministry of National infrastructures, Energy and Water Resources said that export of such an extensive additional amount of natural gas is expected to increase revenue to state coffers from taxes andf royalties. Exports via the new route through Jordan will yield additional revenue of more than NIS 100 million annually for the Israel Natural Gas Lines company through conveyancing fees. The Ministry promises that the extra income produced for Israel Natural Gas Lines will be used for the benefit of Israel's natural gas grid, by reducing tariffs and expanding and improving the existing gas transmission infrastructure. The estimation is that the natural gas is being sold to Egypt for between $6-$8 per million British thermal units (mmBtu).

The agreement has immense geostrategic importance beyond the financial benefits for Israel. In order for it to be approved, the agreement was required from the Egyptian, Jordanian and Israeli governments and indirectly by the UAE whose Mubadala sovereign wealth fund owns a major stake in the Tamar field. Egypt pushed the matter because of its need for gas and its desire to expand economic relations with Israel.

Jordan would ostensibly seem to be the toughest nut to crack due to the political opposition there to the agreement to purchase natural gas from Israel and the energy for water agreement recently signed by the two countries. But sources involved in the matter have told "Globes" that the Jordanian expressed no opposition to the deal. According to those sources, the political opposition did not prevent the Jordan Electric Power Co. from buying gas from Israel and Jordanian agreement to transport gas to Egypt through Jordan was easily achieved.

Jordan will benefit from this by fully exploiting its gas pipeline system, earning royalties and income, and will tighten its energy sector relations with its neighbors including Israel. The fact that the UAE also supported the deal also helped persuade the Jordanians not to object.

Israel's Ministry of National infrastructures, Energy and Water Resources said the behind the scenes meetings by Elharrar and her team with their counterparts from Egypt and other countries were conducted with great warmth and with the intention by everybody to continue the move towards cooperation and expand it to more countries.

Ministry of National infrastructures, Energy and Water Resources director general Lior Shilat told "Globes" that in addition to traditional diplomacy, Israel has become in recent months a significant part of the energy diplomacy in the region. Al-Sisi's warmth towards Elharrari is part of this trend but no less important was what was happening behind the scenes in the working meetings in which Elharrari and her senior staff participated with colleagues from throughout the Middle East and moved forward on energy projects.

Thus the walls are continuing to fall between Israel and its neighbors. Israel is no longer an island in more and more areas such as water, energy and trade. Israeli, UAE and Jordanian trucks travel between Israel and the UAE via Saudi Arabia filled with Israeli goods. Israeli water irrigates the fields of Jordan and now Israeli gas will flow through the Jordanian pipeline on its way to Egypt.

Is Israeli gas replacing Iranian oil in Lebanon?

In recent months, as Lebanon's economic and energy crisis deepens, a deal has been struck in which Egyptian gas will be conveyed by Jordan and Syria to Lebanon. Lebanon is working feverishly to convert its diesel fueled power stations to natural gas as part of the deal. The idea behind the involvement of moderate Arab states involved in the deal is to reduce Lebanon's dependence on oil smuggled from Iran in trade controlled by Hezbollah, which increases their power and influence in Lebanon.

But recent developments raises questions. Which gas exactly will reach Lebanon and through which pipelines? Although the deal involves Egyptian gas, in practice no small amount of Egypt's gas comes from Israel. So it is not impossible that Israeli gas will be lighting up Beirut. Elharrar has said in the past that Israel is selling gas to Egypt and Jordan and it is not our business where it ends up.

The bottom line is that in the wake of the Abraham Accords, ventures and agreements and deals that break down old walls are taking shape. Will politics and the efforts of Iran and those opposing the agreements prevent this? It is reasonable to assume that they could delay and disturb progress but they won't halt it. And there are more countries that are set to become involved in deals of this kind, including other countries in the Gulf, as well as Iraq, which is waiting for the right time to make its move.

Published by Globes, Israel business news - - on February 18, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Prime Minister Naftali Bennett and Presdient Abdel Fatah Al-Sisi meet in Sharm El-Sheikh  credit: GPO, Kobi Gideon
Prime Minister Naftali Bennett and Presdient Abdel Fatah Al-Sisi meet in Sharm El-Sheikh credit: GPO, Kobi Gideon
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018