Israeli officials expressed concern that the new discovery of an
extensive gas field off the coast of Egypt could upend Israeli
development of its own energy resources.
The Italian energy company Eni SpA announced on Sunday the
discovery of the largest gas field in the Mediterranean,
threatening a deal between the Israeli government and developers
that was based on expectations of substantial gas exports to Egypt.
That deal was already bogged down in disagreements over regulation,
pricing and profit-sharing that have delayed the start of
production.
"The discovery of the Egyptian gas field is a painful reminder
that while Israel has been asleep at the wheel and delaying final
approval of the gas deal and additional exploration, the world is
changing before our very eyes with implications for export
possibilities," Israel's Energy Minister Yuval Steinitz said after
Sunday's announcement.
Israel discovered large natural-gas resources off its shores for
the first time in recent years, raising hopes the country could
reduce its dependence on foreign energy. The Leviathan field, found
in 2010, had been considered the largest in the Mediterranean until
the discovery in Egypt. Israel found a second, smaller gas field,
Tamar, in 2009. Though Leviathan is still untapped, plans to export
the gas to Egypt have, until now, figured as a key element in the
Israeli plans to develop the field.
The Egyptian supply may still be years away. The oil ministry
has said production is expected within three years.
The find spares Egyptian President Abdel Fattah Al Sisi the
political liability of doing a gas deal with Israel. Despite
decades of normalized relations, the Egyptian public has never
warmed to the idea of close ties with Israel in business or any
other realm.
A senior Egyptian oil official said that while the gas discovery
won't affect negotiations to buy gas from Israel, final approval
for any deal isn't likely to come soon.
"It will be very hard now to convince the public of the need of
the Israeli gas after the latest discovery," he said.
That means Israel will have to look elsewhere for potential
export markets, amid concerns that competition from Egypt could
lower prices and profitability and damp incentive for the main
developers of Leviathan, Texas-based Noble Energy and the Israeli
Delek Group.
David Stover, chief executive of Noble, said the competition
from Egypt could help spur Israeli regulators to approve a
framework that would let Noble move forward with an expansion of
its Tamar gas field and the development of Leviathan. Mr. Stover
said he is confident the region's demand for natural gas, as well
as demand from export markets in Europe and Asia, is substantial
enough to support production from both gas fields.
"The need and demand for our gas is still there," Mr. Stover
said. "This does not change that."
Gideon Tadmor, chairman of Delek Drilling, a subsidiary of Delek
Group, said the new Egyptian field would serve local demand so it
wouldn't compete with gas from Leviathan, earmarked for export from
Egypt to Europe. Leviathan holds an estimated 22 trillion cubic
feet of gas, while Eni said the field off Egypt may hold 30
trillion cubic feet, enough to supply Egyptian needs for
decades.
"This discovery has not closed the window of opportunity, the
window of export to Jordan, Egypt and also Turkey," Mr. Tadmor told
an economic conference in Tel Aviv on Tuesday. "The great advantage
of Tamar and Leviathan is their timetables. The problem is not in
Egypt, but in Jerusalem. It's all in our hands."
Share prices for the two companies dropped sharply the day after
the Egyptian discovery was announced.
"The announcement by Eni makes the future of Leviathan more
complicated, to say the least," said Oded Eran, a former diplomat
and a senior research fellow at the Institute for National Security
Studies in Tel Aviv. "In the absence of a major buyer, the current
owning consortium will find it difficult to finance the development
of the field."
Egypt needs the energy.
In the hottest months of 2014, Cairo went dark on a daily basis
as energy consumption spiked in the nation of 88 million. Mr. Sisi,
who assured Egyptians he would restore the rickety economy, sought
energy help from Europe and Israel in the form of power plant
contracts and negotiations to import gas.
Egypt largely averted frequent blackouts this summer by shifting
energy from the industrial sector to the residential sector—a
signal that the government had become increasingly aware of the
hardships for ordinary citizens in a country where many are
struggling just to subsist.
Now prospects of the big gas field could save Egypt from making
such choices in the future and may kick-start a sluggish industrial
economy.
Egyptian officials have made their enthusiasm for the gas
discovery all too clear.
Prime Minister Ibrahim Mehleb said the discovery is "a message
from God that he stands with Egyptians and Egypt," adding that it
will dramatically alter the country's energy prospects.
Meanwhile, Israeli Prime Minister Benjamin Netanyahu is
preparing to present the parliament with a deal reached between the
government and Leviathan's developers. But the plan has been
delayed by concerns that the developers will benefit from a
monopoly with high profits that deprive the Israel government of
needed revenues. Israel's antitrust commissioner resigned in
opposition to the deal.
Government approval of the Leviathan development plan was based
on arguments that exporting gas to Egypt would serve Israel's
interests by bolstering the Egyptian government, a key ally against
Islamist extremists, and offering an alternative to Iran as a
supplier of Egypt's energy needs. The developers' plans for
Leviathan envisioned sending gas to facilities in Egypt where it
could be converted to liquefied natural gas for export to
Europe.
Analysts said Israel could potentially find alternative buyers
in Turkey, Cyprus or Greece, though such exports faced political
and other obstacles. Planned deals to sell natural gas to Jordan
and the Palestinian Authority have stalled because of the
regulatory disputes and delays that have plagued the development of
the Leviathan field.
Dahlia Kholaif and Summer Said contributed to this article.
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(END) Dow Jones Newswires
September 02, 2015 18:55 ET (22:55 GMT)
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