Israel Starts Exporting Gas to Egypt under Landmark Deal

CAIRO/JERUSALEM (Reuters) - Israel began exporting natural gas to Egypt on Wednesday under one of the most important deals to have been signed by the neighbors since they made peace four decades ago.

A private firm in Egypt, Dolphinus Holdings, will purchase 85 Bcm of gas, worth an estimated $19.5 billion, from Israel's Leviathan and Tamar offshore fields over 15 years.

Israeli Energy Minister Yuval Steinitz said the deal was "just the start" of cooperation with Egypt.

Yossi Abu, CEO of Israel's Delek Drilling, one of the partners in Leviathan and Tamar, said the arrangement "marks a new era in the Middle East energy sector".

Israel will initially export 200 million cubic feet of gas per day to Egypt, two Egyptian industry sources said. Gas from Leviathon will be supplied to Dolphinus at a rate of 2.1 Bcm per year, rising to 4.7 Bcm per year by the second half of 2022, according to Delek.

The gas is being supplied via a subsea pipeline connecting Israel and Egypt's Sinai peninsula, which Steinitz said had sufficient capacity for current volumes, though the option of building a second pipeline was being considered if demand from Egypt grew. Exports of Tamar gas to Dolphinus are expected to start later this year.

Israeli officials have called the export of gas to Egypt the most significant deal to emerge since the countries signed a historic peace treaty in 1979.

"The fact that the three countries, Israel, Egypt and Jordan are now collaborating together and are already connected with a regional gas transmission system ... this is significant and it will contribute to peace and security in the Middle East," Steinitz told Reuters in an interview in Cairo.

Jordan received its first supplies of Israeli gas at the start of the month.

Energy Hub Plan

Egypt, which has boosted its own gas production in recent years, is hoping the Israeli gas deal will help it become a regional energy hub, with some of the gas expected to be re-exported to Europe through LNG plants.

Israeli gas was not being sent to Egypt's Idku LNG plant yet, but that could happen "in a few months", Steinitz said.

He also said Israel was talking to Egypt and India about exporting surplus gas to Asia via the Suez canal, and that Egypt could in the future join Israel, Cyprus and Greece in the recently signed EastMed gas pipeline project.

Steinitz brushed off concerns over a maritime deal struck between Turkey and Libya's internationally recognized government in November, which is seen by Greece and Cyprus as a hydrocarbons resource grab.

"Nobody can block the Mediterranean and nobody can own the Mediterranean ... I don't think this is a serious obstacle," he said.

Egypt is currently exporting one billion cubic feet of gas to Europe every month via 10 shipments, the country's petroleum minister said in remarks published on Wednesday.

Tarek El Molla also told El Watan newspaper that Egypt wanted to boost gas shipments to Europe to 20 a month after restarting the Damietta LNG plant.

Damietta has been idled for years due to a lack of gas supply during a dispute with Union Fenosa Gas (UFG), a joint venture between Spain's Gas Natural and Italy's Eni.

Damietta is 80% owned by UFG, with the remaining 20% split evenly between the state-owned Egyptian Natural Gas Holding Company and the Egyptian General Petroleum Corporation.

Molla also said Egypt was planning a bidding round for oil drilling in the western Mediterranean Sea and was in talks with Chevron, Exxon Mobile and Total.

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