Israel, Egypt gas agreement: another empty deal

By Muhsin Baris Tiryakioglu

ANKARA (AA) - The recent natural gas agreement on Monday between Israel and Egypt is more symbolic than viable with the aim of fabricating a gas market in Egypt to send a message that Jordan is not Israel's only market in the region, according to the director of hydrocarbons at the Paris-based Mediterranean Energy Observatory (OME).

The agreement is mired with difficulties given that the arbitration case, in which Israel Electric Corporation (IEC) was awarded $1.8 billion in compensation for the halt of gas supplies from Egypt in 2011, is not fully resolved as no compensatory payment has been made yet. In retaliation for the arbitration, Egypt froze talks on gas imports from Israel and Tel Aviv turned to other options.

According to Egypt's energy minister back in November, the country will not issue permits to companies to import natural gas from Israel as long as the arbitration case remains unresolved.

"The agreement does not mean much, Israeli gas cannot reach Egypt before all parties solve the arbitration problem, determine a pipeline route and obtain permits and necessary approvals from the Egyptian authorities," Director Sohbet Karbuz told Anadolu Agency in an exclusive interview.

So far, there is no tangible data revealing a solution to the arbitration results, neither has a pipeline direction been chosen nor any license applications made. Therefore, all particulars about this agreement are left up in the air, and there is only the announcement of the agreement which is similar to those made in October 2014 and November 2015, Karbuz said.

Noble and Delek, energy partner companies in Israel's Tamar and Leviathan offshore gas fields announced on Monday that they would supply an Egyptian private energy company with 64 billion cubic meters of natural gas over the next 10 years. Both companies failed to furnish any details other than the cost and the timeframe of the project.

Israeli Prime Minister Benjamin Netanyahu hailed the deal in a statement but did not clarify whether the agreement is a preliminary or final agreement between the countries or private companies.

In response to the agreement's announcement, Egyptian President Abdel-Fattah al-Sisi said Wednesday that his government was not part of the natural gas agreement inked between Israeli and Egyptian private companies.

- Egypt: not only a gas market but a competitor

With the nebulous $15 billion deal, Israel wants to give a message to Jordan suggesting that Egypt could now become another alternative route for Israeli gas, while urging Jordan to comply with the previous deal with Israel with Jordan's National Electric Power Company (NEPCO), according to Karbuz.

Demonstrations were held in Jordan in October 2016 in protest against the natural gas deal between Israel and Jordan's NEPCO, the only potential gas buyer in the region for Israeli gas, Karbuz explained.

Now Israel wants to avail of the opportunity of regaining a market share in Jordan before Egypt gets back on its feet to become a rival gas exporter to Israel, he added.

"Egypt is preparing to become a gas exporter by 2020 with international companies conducting upstream activities in the Zohr field and several other fields, but Jordan would prefer to buy cheaper natural gas from Egypt," Karbuz said.

The Zohr field, offshore Egypt, is seen as the largest gas discovery in the Mediterranean, while operator and discoverer company Eni confirms that there is potentially a total of 850 billion cubic meters of gas in place.

- Why Israeli gas is expensive

A regulatory law in Israel stipulates that the price of exporting gas cannot be lower than the domestic gas price, Karbuz explained.

The price of Israeli gas for potential buyers and LNG markets is expensive and therefore, the only markets for Israeli gas are Egypt and Jordan.

"Jordan prefers to buy gas from Egypt when it starts gas exports," Karbuz said, adding that this is the motivation for Israel wanting to get there first.

For LNG markets, unless some changes are introduced into the Israeli gas framework, Israeli gas also cannot compete with international prices when extra costs are factored in, including pipeline transportation to LNG terminals in Egypt, liquefaction in these terminals and shipping to global markets and regasification in receiving terminals, Karbuz highlighted.

Karbuz said that if Israel abolishes its domestic gas price rule soon, it could be a game changer.

Already some companies, including Greek Energean Oil, made lower price agreements in Israel's offshore Karish and Tanin fields compared to those of the Noble & Delek consortium in the Tamar and Leviathan fields.

If the rule is scrapped, and if a much lower price is applied to Israeli gas, even gas transmission via the costly East-Med pipeline could become viable.

The East-Med pipeline is a project that aims to carry east Mediterranean gas under the sea to Greece and Italy. However, it faces technical and financial complexities because of the length of range and depth of the sea, potentially making the pipeline through this route impractical.

- Is it too late for an Israel-Turkey Pipeline?

Karbuz advises that Israel not put all its eggs in one basket and hedge its bets by considering all commercially, technically, and politically feasible and alternative routes.

"Israeli officials themselves also admit that they do not want to be dependent on one buyer," Karbuz said.

Therefore, Israel and Turkey still have opportunities to develop bilateral energy relations that would have positive effects in other areas of cooperation, Karbuz said.

Karbuz also recommended that Turkey and its energy companies could offer opportunities for Egypt to meet its electricity needs through natural gas combined cycle plants and renewable energy technologies.

- "Egyptian route for Israeli gas is a lose-lose situation"

The Chairman of Damnus Energy & Investment Inc. Nusret Comert considers that the latest deal between Israeli and Egyptian companies is a second best option for Israel's natural gas industry.

According to Comert, Israel feels obliged to sign an agreement with Egypt, but as per the agreement, the price per one thousand cubic meters is too high to be competitive in global LNG markets.

"Choosing an Egyptian route is a triple loss for Israel, Egypt and Turkey. Israel should start gas exports via the most feasible route, which is the Turkey domestic market," Comert asserted.

"In the beginning, it is normal to send relatively low amounts of natural gas to Turkey, for example, 6 or 7 billion cubic meters per year," he said.

However, you need a path before building a highway, and likewise, with a gas pipeline route that can firstly offer low transmission volumes but can then potentially expand to supply European markets, Comert concluded.