Delek, Noble to invest in EMG Pipeline to Egypt
Thursday, Jul 12, 2018
Israel’s Delek Drilling and US explorer Noble Energy are planning to purchase a 37% share of East Mediterranean Gas Co. (EMG), which owns an offshore gas pipeline running between Al Arish in Egypt and Ashkelon in Israel.

Access to the pipeline would enable Delek and Noble to export gas to Egypt from their Leviathan and Tamar gas fields offshore Israel.

Delek shareholders agreed earlier this month to forego dividend payments and prioritise investment in the EMG pipeline. Acquiring 37% of EMG would give Delek and Noble a controlling interest in EMG.

The flow of the pipeline, which once delivered Egyptian gas to Israel, would need to be reversed. Media reports suggest that Delek and Noble have already begun to examine EMG in order to determine the best way to carry this out. Work of this nature on the Egyptian side has yet to begin.

The companies reached an agreement with Egypt’s Dolphinus Holdings in February 2017 to sell a total of 64 bcm at an estimated value of around US$15 billion, with the contract concluding at the end of 2030. Leviathan and Tamar would each supply Dolphinus Holdings with 3.5 bcm per year. While the deal works to the benefit of Delek and Noble and to Dolphinus Holdings and Egypt, there remain a number of legal issues to be overcome. This includes the unresolved litigation between Egypt and the Israel Electric Corp. (IEC), and legal cases that current Israeli shareholders in EMG have filed against Egypt.

Despite signing a peace agreement in the late 1970s, political events in the Middle East prevent the two countries from establishing a more engaging relationship. This has to some degree delayed the development of energy co-operation.

Israeli gas to Egypt would boost Cairo’s plan to have the country become a regional gas export hub. Dolphinus would supply the gas to Egyptian industry and any surplus could be routed to export through one of Egypt’s two under-utilised LNG facilities.

Negotiations are also underway between Noble, Delek and Royal Dutch Shell, shareholders in Cyprus’ Aphrodite gas field, and the Egyptian government to export by subsea pipeline Cypriot gas to Egypt for export.

Until now, the Israeli shareholders in EMG have yet to acknowledge their participation in negotiations concerning the future of the EMG pipeline. Egypt stopped supplying gas to Israel through the EMG in 2012 following numerous attacks on it by militants in the Sinai Peninsula and also because of its own growing domestic demand for its natural gas production.

The disclosure of Delek’s intensions last week was followed by a drop in Delek share value owing to erroneous reports that Eni, which is active in the Egyptian, Cypriot and Lebanese offshore, had made another major gas discovery in the Noor field offshore Egypt exceeding the 30 tcf (850 bcm) Zohr field. It was thought that another huge discovery of gas offshore Egypt would squash the EMG negotiations.

Eni’s CEO Claudio Descalzi dismissed the report of a discovery, saying that drilling would not begin at Noor until August this year.

If the plan to acquire a controlling interest in EMG does not take shape, Delek and Noble could opt to deliver gas to Dolphinus through the Arab Gas Pipeline (AGP), which used to send gas to Jordan. Those shipments stopped for the same reasons as the shipments to Israel via EMG.

Work in Jordan on the 65-km section of a pipeline that would import Leviathan gas to Jordan’s National Electric Power Co. (NEPCO) is well underway and will be complete by the end of 2019. That pipeline, with a capacity of 10 bcm per year, could connect the Israeli gas fields to the AGP and enable the gas to be routed to Egypt across the Red Sea into the Sinai.

Delek and Noble in September 2016 concluded an agreement with NEPCO for the supply of 45 bcm of gas from the Leviathan field over a 15-year period. The estimated value of the deal is US$10 billion. Work on the pipeline connecting the Leviathan field to the Jordanian border is also underway.

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