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Egypt, Israel reported to be nearing compromise on natural gas dispute

Posted: May 19, 2016 at 1:55 pm   /   by   /   comments (0)

natural gasEgypt and Israel are close to a compromise that would sweep away a major obstacle to a multibillion-dollar natural gas deal.

Israel may agree to settle for half of the $1.73 billion fine Egypt was ordered to pay it so talks on exporting Israeli offshore gas there can go ahead, two people familiar with the negotiations said, requesting anonymity because the talks are private.  Payments would be spread over 14 years, one of the people said.

Negotiations are still under way, and authorities in both countries would have to approve any final figure, the people familiar said. State-owned Israel Electric Corp., which had sought the award from Egypt, and the Egyptian Foreign Ministry declined to comment. Energy stocks climbed.

Israel has painted gas exports to Egypt and other nations in the region as a strategic imperative in an area rocked by strife, and removing this obstacle would be crucial to the export deals it seeks to clinch and to cement ties with its closest ally in the Muslim world. Energy-strapped Egypt needs fuel until it develops its own newly discovered fields, and it can use an idle gas pipeline there to transfer Israeli fuel for export to third countries.

Close Cooperation

Israel’s Ratio Oil Exploration 1992 LP, a partner in the country’s largest gas field, rose 3.7 percent Wednesday in Tel Aviv, while Delek Drilling-LP advanced 2.6 percent. Noble Energy was trading 0.6 percent higher at 11:47 a.m. New York time.

“The stocks are rising with the understanding that an agreement with Egypt will increase the chances for exports,” said Noam Pincu, an analyst at Psagot Investment House Ltd. “This would certainly help.”

Deals between Egyptian and Israeli companies had been in the works when an international arbitration court in December ordered Egypt to pay Israel damages for violating a contract to supply Israel Electric with Egyptian gas. Egypt ordered its oil and gas authorities to freeze negotiations until the dispute over the arbitration was resolved.

Israel’s willingness to compromise on the fine reflects the tight cooperation between the countries since Abdel-Fattah el-Sisi became Egypt’s defense minister in 2012, then president in 2014. Security relations between the two countries, fighting a common enemy in Islamist militants as strife and instability rock the region, have never been better, Israeli officials have publicly said.

Stability Compromise

An accord on the damages would be important progress, but it wouldn’t immediately clear the way to deals. Six years after discovering the country’s largest offshore field, known as Leviathan, Israel has failed to conclude a regulatory framework for its natural gas industry. Leviathan remains undeveloped as a result, and companies won’t sign contracts while rules governing the industry remain in limbo.

Late Wednesday afternoon, Israel’s energy minister said the government and the energy companies had reached a compromise on a provision meant to protect the gas explorers from regulatory changes. That comes after an earlier provision was struck down by Israel’s highest court, hindering the implementation of a gas policy.

“I hope that development of the Leviathan gas field that began last January will now continue in accordance with the original timetable set out in the outline, and that it will be possible to open Israel’s economic waters already this year,” Energy Minister Yuval Steinitz said.

U.S.-based Noble Energy Inc. and Israel’s Delek Group Ltd., the lead partners in the Leviathan field, need export contracts with Egypt to obtain financing to develop it. The government, which expects to reap billions of dollars from gas exports, is working to finalize its energy policy so work on Leviathan can proceed.

Dolphinus, an Egyptian gas-trading company, had been in non-binding negotiations with partners in Leviathan to buy as much as 4 billion cubic meters of natural gas a year for 10 to 15 years. It also signed a deal last year to import fuel from Israel’s second-largest reserve, Tamar.

Egypt exported natural gas to Israel until it canceled the agreement in 2012 as its wells became depleted and the pipeline carrying it came under repeated sabotage. It has said any gas import deal with Israel should include a resolution to international arbitration cases.

(Source: Bloomberg)

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