Egypt and Israel to reach another gas deal

The owners of an Israeli gas field have reached an agreement to export trillions of cubic feet of natural gas through Egypt, a lucrative but politically sensitive deal which the Egyptian cabinet quickly denied would ever happen.

Noble Energy, the largest owner of the Tamar field, signed a non-binding letter of intent with Union Fenosa on May 5, to ship up to 2.5 trillion cubic feet of gas over 15 years, one-quarter of the field’s estimated capacity. Egypt would then liquefy the gas, preparing it for export. The deal could be worth as much as $1.3bn per year.

Both companies told Al Jazeera they hope a contract could be finalised within six months.The Egyptian cabinet, however, seemed to put the brakes on the deal on May 7, saying in a statement that it had not authorised any imports.

“Any company, local or foreign, cannot contract to import gas from a country except after the approval of the Egyptian government,” the statement said.

An official at Union Fenosa acknowledged that the deal is still in its earliest stages, and that it has not received “[the] required approvals from the authorities in Israel and Egypt”.

If the deal goes through, gas would be pumped to a liquefaction plant in Damietta, on Egypt’s Mediterranean coast, which is 80 percent owned by Union Fenosa. The plant has been offline since December 2012 as Egypt, struggling to meet a growing demand for energy, is keeping a growing share of its gas production for domestic use.

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Analysts say the structure of the deal, in which a foreign company uses Egypt only as a transit point for exports, could offer Cairo a way to minimise domestic political backlash.

The agreement would be between foreign companies, and most, if not all, of the gas would be exported rather than sold on the local market. Both companies refused to comment on whether Egypt would keep any gas for domestic use.

The deal could also reduce pressure from major energy firms, which are losing money as Egypt scales back exports. Union Fenosa filed a complaint against Egypt at the International Chamber of Commerce last month over the shutdown of the Damietta facility. BG Group, another large gas producer, said last week that it did not export anything from Egypt in the first quarter of 2014.

As recently as 2011, Egypt was an energy exporter, sending fuel to Israel and Jordan via a pipeline across the Sinai. Gas was sold to Israel at below-market rates through the East Mediterranean Gas company, co-owned by well-connected businessman Hussein Salem, who has since fled the country for Spain.

The pipeline became a target for fighters after the 2011 revolution that overthrew President Hosni Mubarak; it was attacked more than a dozen times in the year following his resignation.

The shipments to Egypt would use the same route, at least initially, though Noble said last year that it was studying plans for an undersea pipeline directly to Egypt.

The Tamar field, discovered in 2009, is Israel’s first major gas find. It started production last year but so far has found few international markets: Jordan and the Palestinian Authority both signed deals to purchase gas, but neither is a major importer.