Over the past week, the debate has raged at research and economic centers over the news that Egypt signed a deal to import gas from Israel. Speculation has arisen over the goal of this agreement after Egypt had effectively started producing gas from the Zohr field, the largest in the Mediterranean.
The Israeli energy group Delek said on Monday agreements have been signed between Delek and its associate Noble Energy of the United States to supply 64 billion cubic meters (2.26 trillion cubic feet) of gas from Israel's Leviathan and Tamar offshore fields to the Egyptian firm Dolphinus over a 10-year period.
The Egyptian Ministry of Petroleum and Mineral Resources initially did not comment on the details of the deal, “because it concerns private sector companies.” On Tuesday however, it said that “Egypt’s strategy to become a regional energy center includes importing gas from several eastern Mediterranean countries, including Israel and Cyprus.”
Egyptian energy experts told Asharq Al-Awsat that Cairo is seeking from its deal with Israel to restore operation at two gas liquefaction plants, resolve international arbitration issues and transform the country into a regional energy hub. Cyprus’ Energy Minister Giorgos Lakkotrypis announced earlier this week that Nicosia was “on the verge of selling natural gas to liquefaction plants in Egypt.”
Indeed, Cyprus and Egypt signed on Thursday a preliminary agreement to set up pipeline between their two countries. Egyptian Petroleum and Mineral Resources Minister Tarek El Molla highlighted after signing the deal the significance of his country’s location on the eastern Mediterranean, saying that its facilitates the export of gas to the east, west, Gulf and Mediterranean.
“This will attract other investments and petroleum industry players from neighboring countries,” he added.
The Egyptian-Cypriot rapprochement has been met with major Turkish opposition. This is not the first time that Ankara objects to their rapprochement. In 2013, it had rejected a marine border demarcation agreement signed between Greek Cyprus and Egypt.
Business and politics
Defenders of the Egypt-Israeli deal believe that it will boost Egypt’s economy, noting that the country already has the needed infrastructure to make progress in its implementation. A pipeline already exists between Egypt and Israel. They added that the deal would not have been possible without the parliament’s ratification in July 2017 of a law on the establishment of a gas regulatory authority. The law was approved by President Abul Fattah al-Sisi a month later.
Experts estimate that gas reserves enjoyed by Turkey, Greece, Syria, Lebanon, Israel, the Palestinian territories, Egypt and Cyprus amount to over 370 trillion cubic feet, the second largest in the world.
Energy expert Mohammed al-Sayyed Bedawi stressed to that end the need to “separate business from politics.”
“Six years ago, Egypt was exporting gas to Israel through the East Mediterranean Gas Company (EMG), which was owned by Egyptian businessman Hussein Salem before he was arrested on financial and legal charges,” he explained to Asharq Al-Awsat.
He therefore highlighted the significance of the deal with Israel, saying that Egypt was set to make major revenues. It will also allow it to restart the gas liquefaction plants that will in turn benefit Egyptian and foreign investors in this field.
Egypt has two gas liquefaction plants. The first is the Egyptian Liquefied Natural Gas Company (ELNG), which is located in Edku city in the Beheira governorate. The second is located in the Domyat region and belongs to the Spanish-Italian Union Fenosa Gas Company. Experts said that the construction of the two plants cost 3.2 billion dollars and they are now worth some $16 billion.
Dr. Jalal Othman of the International Renewable Energy Agency told Asharq Al-Awsat that Cairo is set to make major economic gains from its deal with Israel, noting that only 634 gas liquefaction plants exist in the world and two are located in Egypt.
The eastern Mediterranean enjoys 13 gas fields. Israel has five offshore fields and Lebanon, Syria, Cyprus and the Palestinian territories enjoy two each. Egypt has the Zohr field, which was discovered by Italy’s Eni company. It estimated that it holds 30 trillion cubic feet of gas over a surface of 100 square kilometers. Egypt is currently seeking to speed up gas production in its fields in order to become self-sufficient by 2019.
Regional energy hub
Recalling Sisi’s statements that Egypt has transformed into a regional energy hub, petroleum expert George Eyad said: “This strategy started years ago and the country is now reaping the rewards of this dream.”
He told Asharq Al-Awsat that it would be difficult for Israel, Greece and Cyprus to construct gas liquefaction plants because they have become too expensive. In addition, he explained that gas is not stored like petroleum, but it is pumped in pipes from the source to the receiver or it is liquefied. Israel cannot currently do that and the plan to establish a pipeline to each of Cyprus and Turkey has come to halt, much to its dismay, he said.
The Egypt-Israel gas deal allows Cairo to earn $2 billion on an annual basis in exchange for gas liquefaction. It will also allow it to connect Greek Cypriot gas to liquefaction plants and later export them to Europe. Eyad revealed that Lebanon will soon begin drilling oil wells and it will rely on liquefying it in Egypt.
The deal was deemed by Israel as “historic”, while international sides said it was the most significant agreement between Egypt and Israel since their 1979 peace deal.
Turkey, meanwhile, has looked on with disappointment.
At a time when Egypt spoke about becoming a regional energy hub, Cypriot President Nicos Anastasiades stressed his country’s right to drill for oil and gas in its territorial waters, in spite of the opposition of Turkey and Turkish Cypriots.
Ankara deemed the 2013 marine border demarcation signed by Egypt and Cyprus as a violation of Turkey and Turkish Cypriot rights.
"I don't think Turkey is willing to spark a confrontation, but I think it cannot be fully dismissed," said analyst Andrew Neff from IHS Markit according to Agence France-Presse.
"If one of these drillships wanders too far into disputed waters then I think we'll see Turkey engage in some additional 'gunboat diplomacy' in defense of its interests."
Losers from the deal
Eyad said that the Egypt-Israeli deal has harmed Qatar and Turkey. The latter will be forced to impost liquefied gas from Egypt, while the former will lose part of its European market despite its major liquefaction capabilities.
Turkey will have to buy gas from Egypt in the future, as will Europe, due to cheaper costs he predicted.
Qatar will likely lose 70 percent of its European market and it will only have the Latin American market to turn to. “This deal dealt a heavy blow to both Ankara and Doha,” he stressed.
“Turkey has been provoking Cyprus through all possible means to deter it from drilling for gas. President Recep Tayyip Erdogan wants to have eternal control over Cyprus’ wealth and the deal struck between Cairo and Nicosia has definitely made him worried about the future,” said Eyad.
Ankara has however been operating on the Israeli front by striking energy deals there, including setting up a natural gas pipeline from Israel to Turkey and from there to Europe.