New Gas Export Pipeline Agreement Enhances Israel-Egypt Energy Trade
Final Agreement Reached for “Nitzana” Pipeline
On Friday, the deadline officially closed for signing contracts related to the new gas export pipeline “Nitzana,” which will enable direct gas exports to Egypt. After numerous delays and internal disputes, the involved companies reached an agreement and published their respective shares in what promises to be a significant advancement in energy trade between Israel and Egypt.
Stakeholder Participation and Capacity Allocation
All gas reserve holders in Israel participated in the negotiations, competing for capacity within the export pipeline. It has been determined that the Leviathan and Tamar fields will each supply 41.8% of the pipeline’s capacity, while Energean’s fields (Karish, Tanin, and Katlan) will contribute an additional 16.4%. The pipeline is expected to boost Israel’s gas export capacity by 6 billion cubic meters (BCM) per year, equivalent to half of Leviathan’s annual output and a significant portion of Tamar’s production.
Investor reactions were positive when the stock market opened on Sunday, seeing the oil and gas index rise by more than 2% initially, although these gains moderated throughout the day. Notably, all stakeholders appear to have benefitted from the negotiations, particularly in the business realm.
Impacts on Major Gas Fields
The Tamar field will benefit from increased export capacity to foreign markets, while the Leviathan field signed an export agreement even before receiving official permits from the Ministry of Energy. Energean, the smaller player with relatively smaller reserves, also secured a position in the agreement at the last minute, marking its entry into the larger market.
Overview of the Gas Agreement with Egypt
Israel’s gas market is primarily concentrated in two large reserves: the Leviathan field, which has reserves exceeding 600 BCM and produces about 12 BCM annually-87% of which is exported, mainly to Egypt and Jordan-and the Tamar field, which holds slightly less than 300 BCM and produces around 10 BCM per year, most of which is intended for the local market as part of a significant deal with the Electric Company.
The announcement of a new export agreement last August, involving 130 BCM of gas for $35 billion, significantly upgraded export potential to Egypt. Although official export permits from the Ministry of Energy are pending, preparations for export are already underway.
Financial Framework and Future Revenue
The finalization of the agreement for sharing export capacity via the Nitzana pipeline had already faced five delays in the past two years. The exporters were required to share the payment for the construction of the pipeline and allocate export volumes accordingly. With the agreement now in place, the exporters will also pay fees to the government company overseeing the project, with projections indicating potential revenue of around a billion shekels over the pipeline’s lifespan.
Significantly, the expected primary buyer of this gas will be the Egyptian company Blue Ocean Energy, which will be purchasing Israeli gas.
Key Players and Stakeholder Interests
Notable figures benefiting significantly from the pipeline’s establishment include businessman Aaron Frenkel, who holds an 18% share in the Tamar field and has recently acquired more shares. Frenkel aims to increase export volumes from Tamar, arguing that the current distribution of gas exports is inequitable compared to Leviathan’s operations.
As it stands, the Tamar field currently exports approximately 3.5 BCM annually, with the new agreement potentially allowing for export volumes to rise to 6 BCM per year, marking a significant step towards enhanced export capabilities.
Leviathan and Energean’s Position
Similarly, the Leviathan field is set to gain from the agreement, having already signed export agreements despite awaiting formal export permits. The Ministry of Energy has stated that Leviathan’s export request is still under professional review.
Energean, whose current output serves the domestic market, has secured a place in the pipeline with a commitment to export 1 BCM annually. Currently without international customers, the company is negotiating with potential clients in Egypt and Jordan and considers their pipeline position a valuable asset should these negotiations not materialize.
Local Energy Market Concerns
While gas fields are rapidly advancing toward export, challenges loom over the local energy market. A significant deal involving the Tamar field and the Electric Company fell through last Friday, leaving only Chevron and Dor Energy (holding 29% of Tamar) committed to the original agreement on gas prstarts until 2035. This failure may necessitate arbitration in London, possibly affecting prstarts by up to 10%.
Overall, while export prospects grow, the domestic prstarts that consumers benefit from may come under scrutiny, reflecting competitive pressures in the local market.
This article provides a summary of the recent developments in Israel’s gas export strategy, highlighting the significance of the Nitzana pipeline and the various impacts on local and international energy dynamics.