Egypt, Israel, and natural gas

A new variable started factoring into the Egyptian-Israeli relations in 2005, when the two countries agreed on two major accord, which continue to affect their relations until present. The first was the Agreement on the Qualifying Industrial Zones, known as (QIZ), which was sponsored by the US. Through this agreement the US aimed to give both sides a boost towards economic cooperation. The second agreement had to do with Egyptian gas export to Israel. Israel at the time was suffering from a major deficit in energy supplies, solely depending on Europe for its supply, which cost it a lot. Therefore, Israel started searching for a consistent supply of energy from one of its neighbors, and only Egypt had the political ability and financial capacity to take such an important step. 

Firstly: Between 2005 and 2012

A memorandum of understanding was signed on 30 June 2005 to export Egyptian gas to Israel for $2.5 billion. As agreed upon, Egypt was to annually export 1.7 billion cubic meters, equivalent to 60 billion cubic feet, of natural gas. This was binding for 15 years, until 2020, and could be extended till 2021. In other words, the total gas that should have been exported to Israel was 34 billion cubic meters, throughout the 20 years, at a rate of $70 million per billion cubic meters.

Indeed, in May 2008, Egypt exported gas to Israel until 2012. The operation halted when the security conditions in Sinai deteriorated. This happened following the events that led to the overthrow of late President Hosni Mubarak in 2011. Egypt’s exports to Israel were limited in the period from 2008 to 2014, as shown in the following figure: 

Figure 1: Sources of Israeli gas from 2004 to 2012

As shown in the figure, Egypt was not Israel’s main source of gas, although it totaled approximately 39% of the total gas used in 2010. The total Egyptian gas exported to Israel didn’t exceed 4.68 billion cubic meters, to the tune of $327.6 million, throughout the entire period. Egypt didn’t export the agreed-upon yearly share except in 2010 when the exports reached 2.1 billion cubic meters.

During Mubarak’s tenure, Egypt sold gas to Israel for lower than the international price. At the time of the agreement in 2005, the price of a million British thermal units, according to the contract, was $2.08. The average price for both liquefied and piped gas, during the five years of exporting, in the two main European points was higher than the Egyptian supply price, at all times, as shown in the following table:

Table 1: Egyptian gas prices compared to average European prices

The table shows that the price difference, over the entire period, was about $939.9 million or $1 billion.

The Supreme Council of the Armed Forces’s decision in April 2012 to cancel the deal was a smart move. The continuation of exporting gas would have increased Egypt’s losses and disabled it from purchasing gas for local consumption, as the production rate became unable to meet both the domestic demand, and the export. Consequently, the agreement had to be terminated at the time, especially considering the heavy pressure on the Egyptian cash reserves, which could have pushed the country towards an economic disaster.

Secondly: Between 2013 and 2018

Starting 2013, Israel improved its production from the Tamar gas field to 5.49 billion cubic meters, while the remaining sources fell to about 900 million cubic meters from the Thetys reservoir and another 500 million from the Bio reservoir. Moreover, Tamar field contributions continued to rise to 10.46 billion cubic meters in 2018. On the other hand, Egypt’s suffering continued during the years between 2012 and 2018, with the cost of imported gas reaching its peak in 2017. This was before Zohr Field factored into the production equation, turning the deficit into a surplus since 2019. The following figure illustrates the evolution of Egyptian gas purchases during said period:

Figure 2: The evolution of Egyptian gas purchases between 2013 and 2018

The figure shows Egyptian gas purchases rose steadily, until they peaked in 2017 at $3.5 billion, before beginning to decline again to reach $2.42 billion.

Following the Egyptian government’s decision to suspend the export of gas to Israel, relations between the two countries were limited to arbitration cases only. The legal dispute took the form of a squabble between the private sector companies Ampel-American and Others and Maiman, the origin of which was mainly the owners of the last two companies in East Mediterranean gas and oil. Most importantly, Ampel demanded a compensation of $564.4 million, as shown in the following table:

Table 2: Explains the details of Ampel’s claims in the arbitration dispute:

The dispute ended up being solved politically, in light of the awaited cooperation between both the Egyptian and Israeli parties. This is in light of the discovery of the Zohr gas field, Egypt achieving self-sufficiency in 2019, the beginning of a new export era and Israel’s realization that it won’t be able to export its gas products except through Egyptian liquefaction facilities, which has actually happened, as we explain in our next point.

Thirdly: From 2018 to present 

Egyptian-Israeli relations have improved. This development can be traced through export agreements and the development of transport infrastructure represented in gas lines. Explaining these points further: 

1. Export to Egypt Agreements 

On 19 February 2018, Israeli Delek Drilling and its partner, American Noble Energy signed two binding agreements with Egyptian Dolphinus Holding according to which the latter should import gas then transport it to Egypt’s liquefaction facilities and then re-exporting to Europe. The total agreed-upon quantities for export were 64 billion cubic meters, from Tamar and Leviathan gas fields over the period of 10 years, from 2020 to 2030, in an agreement worth $15 billion.

On 3 October 2019, the three companies agreed on amending the previous agreement, intending to increase the volume exported to Egypt by 34 percent, to reach 85.3 billion cubic meters by 2035. This way, the value of the deal would increase to $19.5 billion, instead of $15 billion, consequently increasing the amount exported from Levithan to 60 billion cubic meters, and decreasing the amount from the Tamar field to 25.3 billion cubic meters down from 32 billion cubic meters. The first shipment imported from Israel arrived on 15 January 2020, with 1.5 to 3 billion cubic meters annually through 2020, to increase by 2021 to 4-5 billion cubic meters, then finally reaching around seven billion cubic meters by 2022. 

1. Gas Lines

Egypt and Israel are mainly connected by the East Mediterranean gas line, which was initially built to transport Egyptian gas to Israel, and in fact did transport Egyptian gas to the Israeli electricity company, but was considered insufficient to absorb these massive amounts of gas so it was developed.

• An Egyptian gas pipeline that extends from Arish, Egypt, to Ashkelon, Israel, in Egyptian then Israeli territorial waters in the Mediterranean Sea, with a length of 100 km. It was previously owned by the Egyptian East Mediterranean Gas Company, then was bought by a group of Israeli companies, whose shares are divided as follows: Delek with 25 percent, Noble with percent, and East Gas with 50 percent. Its redevelopment process ended last January at cost of 27 million Shekels, to raise its efficiency and increase the volume it pumps.
• On 19 January 2021, Leviathan and Tamar gas field partners announced an agreement whereby Israeli Natural Gas Lines Limited (INGL) would extend a new undersea pipeline parallel to the first. The new line will cost $228 million, and the expansion expenses will be paid by Israeli gas companies at 56% of the new pipeline, and the rest of the cost will be borne by foreign partners.