Israel-Egypt gas pipeline deal, explained

The origins of the deal date back to April 2011, when Egypt's Arab Spring revolution shook much of the Middle East. During that time, the country's gas production fell, while its consumption demand increased.

Prior to the revolution, Egypt was a gas exporter, producing much more than its local needs and exporting it mainly to Israel and other EU countries through the East Mediterranean Gas (EMG) pipeline. As the revolution in Egypt was brutally crushed by the military regime of Abdel Fattah el Sisi, the country's gas production saw a steep decline in the following years. 

To meet domestic consumption, Egypt stopped exporting, especially after two of its Liquid Natural Gas (LNG) plants ceased to function in light of the deepening financial crisis. 

Egypt faced another set back to its Israel-bound gas exports when its main supplyline came under attack in 2012, bringing a complete halt to its gas exports. To tackle slow gas production and meet its local demands, the Egyptian government began importing LNG between 2012 and 2018 as a temporal solution and started searching for a cheaper source of imported gas.  

While Egypt was reeling under revolutionary protests and their aftermath, Israel was focused on diversifying its energy needs. In 2009, it had already discovered offshore energy reserves in the Mediterranean sea: The Tamar gas field contained 10.8tn ft³ of gas, kick-starting Israel’s gas rumble. A year later,  it found another gas field called Leviathan, which had reserves of 22tn ft³.

One year later, the Greek Cypriot Administration of Southern Cyprus discovered the Aphrodite field, which is located in exploratory Block 12 in the Cypriot Exclusive Economic Zone (EEZ) with an estimated 4.5tn ft³. These discoveries worked in favour of Israel, reducing the country's gas dependency by at least 50 years. While meeting its own demands, Israel aims to export gas to Europe as well. 

For Egypt, Israel has grown from being a buyer to a seller until Cairo realises its own energy potential and starts extracting gas from its newly discovered offshore fields such as Zohr and Nour. Until then, the tables will remain turned, with Israel supplying gas to Egypt using the same pipeline Egypt once used to supply energy to Israel.  

Turkey also comes into play. Earlier the plan was that Israel would use Turkey's geographical advantage to export gas to European countries, but with Ankara and Tel Aviv caught in a diplomatic standoff over renewed violence in Gaza, the latter has decided to sidestep the former, and instead redrawn the energy route from the Greek Cyprus Administration to Greece to Italy.  

The entire pipeline to Italy including an LNG terminal would cost an estimated $9- $10 billion, a whopping number that makes the project a costly enterprise in a highly competitive gas market. 

Now Egypt can help Israel reduce an expense of at least $2-3 billion by offering its existing LNG plants. While Israel can significantly bring down the total expenditure on infrastructure building, Cairo can have a recurring income by renting out its existing LNG plants to Tel Aviv.  

Current Situation

On Sunday, Israel and Egypt confirmed that the natural gas pipeline agreement is expected to be closed in the following days.

Texas based Noble and Israel’s Delek, who are key partners in the Leviathan gas field and the existing Tamar field off Israel’s Mediterranean coast, have partnered with Egyptian Gas Co in a venture called EMED. The EMED venture is buying rights in the EMG pipeline, which will carry gas to Egypt from the Tamar and Leviathan reservoirs in Israel.

Last year the parties agreed to buy a 39 percent stake in the subsea EMG pipeline for $518 million that will carry Israeli gas exports to Egypt.

Contracting parties of the agreement 

Noble Energy is a Texas-based company founded in 1932 as an explorer of crude oil and natural gas, founded by Lloyd Noble in southern Oklahoma. It delivers oil and natural gas to the marketplace. 

The Delek Drilling partnership is a subsidiary partnership of the Delek Group, controlled by entrepreneur and businessman Yitzhak Tshuva. Delek Drilling is the leading Israeli energy partnership in the exploration, development, production and sale of natural gas and condensate.

The Egyptian Natural Gas Company (GASCO) was established in 1997. The company operates, maintains and manages the national gas grid and distributes across Egypt. 

The supply deal with Egypt is expected to start in January. To buy into EMG, which owns the 90 km subsea pipeline between Ashkelon in Israel and El-Arish in Egypt, the three partners formed the joint company EMED.

East Gas holds 50 percent of the venture while Delek Drilling and Noble own 25 percent each.