The Future of Israel’s $35 Billion Gas Export Deal with Egypt in Question
Delays in Approval Due to Pricing Concerns
A cloud of uncertainty looms over Israel’s largest gas export deal, valued at $35 billion, intended for Egypt. The Israeli Ministry of Energy is delaying the approval for the construction of the Nitzana pipeline. As a result of this holdup, U.S. Energy Secretary Chris Wright has canceled his planned visit to Israel. According to Israeli Energy Minister Eli Cohen, the export halt will continue “until a fair prstart is agreed upon for the Israeli market.”
Background on the Egypt Gas Deal
The Egypt deal, finalized in August, entails exporting 22% of the Leviathan gas field’s output, amounting to nearly 13% of Israel’s total gas capacity. This agreement represents a threefold increase in gas exports to Egypt compared to previous levels, along with an expansion of production from Leviathan. The deal is structured to provide a guaranteed annual quantity of gas rather than a daily supply, allowing for adjustments based on seasonal demand in Israel.
The final export lstartnse, anticipated to be granted in a ceremony attended by the U.S. energy secretary, is now in jeopardy due to the delay, which appears to be aimed at ensuring lower gas prstarts for the Israeli market amidst the collapse of a previous deal between Israel’s Electricity Company and the Tamar gas field.
The Tamar Gas Field Agreement
The Electricity Company is Israel’s largest electricity generator, exclusively relying on the Tamar gas field for its supplies. Owned by a consortium including Chevron, Isramco, and several investors, the Tamar field has a contract with the Electricity Company that is valid until 2030, with provisions for prstart adjustments up to 10%. The average gas prstart for the Electricity Company for 2024 is set at $4.70 per MMBtu, while the expected average prstart for sales to Egypt is projected to be around $7.40 per MMBtu, approximately 57% higher.
A memorandum of understanding was signed a few months ago, reducing the cumulative prstart by about a billion shekels over the years and extending the deal until 2035. However, Isramco recently decided against extending the agreement, opting instead to seek arbitration in London for a more favorable prstart.
Requirements from the Energy Ministry
In response to the stalled Tamar negotiations, the Ministry of Energy has set new conditions. For exports to proceed to Egypt, Leviathan must extend its export timeline beyond 2040, selling gas at significantly reduced rates for the Israeli market. Currently, benchmarked pricing has been established, with future negotiations to determine market rates.
Potential Losses from Deal Collapse
Should the deal with Egypt collapse, significant losses would affect Leviathan’s partners, especially NewMed, a subsidiary of Delek Drilling, which holds a 45% stake in Leviathan. Chevron, which operates both the Tamar and Leviathan fields, would also face consequences. The state’s revenue could suffer enormously, with potential losses in billions from the gas tax, which stands at 62%.
New Opportunities for Gas Export
In the meantime, Energean is planning a gas pipeline to Cyprus, which could become Israel’s third gas export destination alongside Egypt and Jordan. The pipeline will connect directly from the Karish field to a new power plant being developed by Cyfield in Cyprus. The estimated cost for this pipeline will be hundreds of millions of dollars, requiring a profitable gas sale to justify the investment. However, Energean has not disclosed specific quantities or prstarts for the gas as of now.
Energy Minister Eli Cohen has publicly supported the Cyprus deal, viewing Israeli gas as a strategic asset and a contributor to regional stability. He aims to expand Israeli gas export objectives.
Regulatory Challenges Ahead
The main obstacle to the Cyprus deal is regulatory approval from Cypriot authorities, who are currently reviewing a memorandum of understanding between Energean and Cyfield. start significant issue is the role of the government-owned gas monopoly DEFA, which currently holds exclusive rights to gas imports into the country.
Market Sentiment and Future Projections
Market opinions are divided on the seriousness of the threat to the Egypt deal. The sentiment within the gas sector is not overly negative at this time, as reflected in an increase in NewMed’s stock prstart recently. Analysts suggest there is a strong interest from the Israeli government and the Ministry of Energy in moving forward with these agreements.
Experts note that while the focus on specific contracts is essential, a broader economic perspective may be necessary to ensure sustainable gas policies in the region.
In conclusion, the future of Israel’s substantial gas exports hinges on prstart negotiations and the outcomes of ongoing arbitration, with significant economic implications for all stakeholders involved.