Buried on page 201 of the prospectus by Delek Drilling LP (TASE: DEDR.L) is a very interesting statement. The company, controlled by Yitzhak Tshuva through Delek Group Ltd. (TASE: DLEKG), which owns rights to the Tamar, Leviathan, Dalit, Noa, and other licenses, is considering "exporting natural gas to the Palestinian Authority and neighboring countries". This is prospectus-speak for Jordan and Egypt, Israel's only two neighbors that even theoretically might buy its natural gas.
Israel began planning for natural gas imports from Egypt in 2000. Israel waited eight years for the gas to arrive. But Egypt subsequently raised the price by 40%, and Sinai Bedouin have been blowing up pipelines, spewing the gas into the heavens and driving Israel's electricity rates in the same directions.
After ten years of work, aggravation, and disappointment with Egyptian gas, it now appears that the gas flow will head the other way in the next decade - provided, of course, that the terms of the peace treaty remain in force. All the signs point to Egypt as a potential customer for Israeli gas, and the only question - political issues aside - is whether Egypt is prepared to pay the price for Israeli gas that it is demanding Israel pay for Egyptian gas.
Egypt has produced natural gas since the 1950s. Its current gas reserves are double the size of Israel's. It signed contracts to export natural gas to Israel, Jordan, and Syria, and its exports liquefied natural gas (LNG) to Europe and South Korea. But Egypt's planners serious miscalculated domestic demand. In 2009, Egypt consumed 45 billion cubic meters of gas - ten times the amount consumed by Israel. Egyptian gas is heavily subsidized, boosting demand by 8% a year, according to the International Energy Agency (IEA).
However, Egypt's gas production is barely growing at all. Last summer, Egypt suffered widespread blackouts, which may have signaled the demise of the Mubarak regime. The current government is more afraid of its angry public than of angry Israeli consumers, which is why it slashed gas exports. Egypt's two LNG facilities for exporting gas are half abandoned. The current conditions will only worsen. Political instability and violating international gas supply contracts will deter foreign energy companies from investing in developing Egypt's current gas reserves and discovering and developing new ones.
Egypt's domestic demand for gas will continue to grow and cutting the subsidies is out of the question. This is why Tshuva can expect a telephone call from Cairo.
Another possible beneficiary of Israeli gas exports to Egypt is Yosef Maiman, Tshuva's rival in signing gas delivery contracts with Israel Electric Corporation (IEC) (TASE: ELEC.B22), Israel Corporation (TASE: ILCO), and other customers, could team up with him. Maiman, through Merhav Group and Ampal-American Israel Corporation (Nasdaq: AMPL; TASE:AMPL) is a shareholder in East Mediterranean Gas Company (EMG), which owns a gas pipeline - currently unused - for delivering Egyptian gas to Israel. The pipeline can just as easily carry gas in the other direction.
Middle Eastern gas business, just like its politics, may deliver little gas but plenty of revolutionary surprises.
Published by Globes [online], Israel business news - www.globes-online.com - on July 25, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011