Egypt and Israel are considering construction of a liquefaction facility on the shores of the Red Sea in Sinai through which natural gas can be exported to markets in Asia, sources inform Globes.
The initiative is similar to the one previously promoted by Eilat-Ashkelon Pipeline Co. (EAPC), which wanted the facility to be in Israeli territory near Eilat. The idea was shelved due to strong opposition, among other things by the Ministry of Environmental Protection.
This time, the idea is to construct the facility on the Egyptian side of the border, which will make it possible to overcome the opposition to the huge project. In Egypt, the ability to delay such projects for environmental reasons is much more limited.
Furthermore, a liquefaction project on Egyptian territory can provide jobs for thousands of Egyptians during the construction stage and hundreds more during the operational stage.
Building the facility on the Red Sea is designed to open the option of exporting Israeli and Egyptian liquefied natural gas (LNG) to the East Asian market: India, China, Japan, South Korea, and other countries, which constitute 70% of the global liquefied gas market. The cost of building a medium-sized land-based liquefaction facility is projected in the $10-15 billion range.
The relative advantage of a facility located on the Red Sea is that it shortens the route for transporting the gas and bypasses the expensive passage through the Suez Canal.
The idea of building the facility was raised during the visit to Egypt last week by Minister of National Infrastructure, Energy, and Water Resources Dr. Yuval Steinitz. The visit, which took place in advance of a conference of energy ministers from the region, shows that relations between the Israeli government and the government of Egyptian President Gen. el-Sisi concerning Israeli gas have been stepped up.
The change this time is not merely theoretical; meetings are taking place. Steinitz, whose meetings with senior Egyptian officials were previously held in private apartments under a cloak of secrecy, was given an official reception this time that included unusual gestures by the hosts.
He held a press conference together with el-Sisi, and paid a visit to the pyramids in Giza together with Egyptian Minister of Petroleum Tarek el Molla that was closely covered by the press. It is believed that the high profile given to the visit was due to US sponsorship, among other things, given US President Trump’s deal of the century and the economic conference in Bahrain several weeks ago.
In addition to the new idea, Steinitz also discussed implementation of the agreement to export gas from the drilling platforms at the Tamar and Leviathan natural gas reservoirs to the two liquefaction facilities in Egypt, and possible expansion of this agreement in the future.
“Egypt does not require US persuasion”
The new chapter in the Israeli-Egyptian rapprochement mandates attention to two main points: the role plaid by the US administration in these relations and the question of whether Israel is not entering the Egyptian embrace too quickly, without having drawn lessons from the dismal conclusion of the previous chapter in the relationship.
The presence of US Secretary of Energy Rick Perry unquestionably contributed to the unusual Egyptian conviviality. “This is the first time that we are seeing such a high-level US representative at such a forum,” Institute for National Security Studies senior research fellow and former Israeli Ambassador to Jordan and the European Union Oded Eran told “Globes.” “The US may be waking up and realizing that it is also necessary to enter the Middle East energy playing field at the political level.”
Did Perry come to exert pressure on the Egyptian government to go through with the agreement to buy Israeli gas from Tamar and Leviathan? The Israeli Ministry of National Infrastructure, Energy, and Water Resources told “Globes,” “Egypt is interested enough in Israeli gas for its own reasons. It does not need US persuasion.”
The ministry added that the reason that Egypt is interested in Israeli gas is Egypt’s desire to increase its revenue from gas exports through the liquefaction facilities on Egyptian territory, which are currently not working at full capacity.
“The US has an interest in supporting Egypt’s plan to become a regional energy center,” says Gina Cohen, a consultant to gas companies who was recently invited to give a lecture about gas policy to senior Egyptian officials. “Trump’s deal of the century includes a $1.5 billion investment in turning Egypt into a regional energy hub. This measure is designed to support the Egyptian economy and also contribute to the US effort to lessen the European Union’s dependence on Russian gas.”
“The US has been pressuring the European Union for two years not to approve increased dependence on Russian gas through pipelines such as the North Stream 2 to northern Germany and TurkStream2 for carrying Russian gas via Turkey and Bulgaria. Instead, the US wants them to buy liquefied gas from the US, and also from the Eastern Mediterranean,” Cohen explains.
Eran says that Egypt’s ambitions to become a regional hub put it in direct competition with Turkey, which regards itself as such a hub. Egypt’s embrace of the US can therefore be regarded as a response to the rapprochement between Turkey and Russia, which aroused great anger in the US.
A closed and less vulnerable liquefaction facility
The beginning of what appears to be a new chapter in an Egyptian-Israel rapprochement comes simultaneously with the termination of the previous dismal chapter. In late 2011, the flow of Egyptian gas to Israel suddenly came to a halt, following a series of explosions in the pipeline carrying gas to Jordan and Israel. Bedouins in northern Sinai fighting against the Egyptian central government, which refused their demands for a cut of the economic activity involving gas, were probably responsible for the explosions.
When the reins of government in Egypt passed from Hosni Mubarak to Mohamed Morsi, who was affiliated with the Muslim Brotherhood, the two Egyptian government gas companies announced the unilateral cancellation of the signed agreement to supply gas to Israel Electric Corporation (IEC), an agreement guaranteed by the Israeli and Egyptian governments. The halt in the flow of gas to Israel cost electricity consumers in Israel major hikes in electricity rates for five years. The direct damage to the Israeli economy was estimated at NIS 15 billion. The rates were raised because IEC had to use expensive and highly polluting diesel fuel and fuel oil instead of natural gas.
IEC this year signed a compromise agreement in which it conceded $2.3 billion in compensation from the Egyptian companies awarded in a forfeiture judgment by a court in Switzerland in exchange for a payment of $500 million over the next eight years. The sum represents a write-off of 85% of the forfeiture debt.
At the same time, the new plant for cooperation with Egypt also exposes Israel to risks. Exports of Israeli gas to Egypt, not in the other direction, are involved this time, but in this case also, Israel is liable to lose huge amounts if Egypt fails to go through with the agreement. The fact that the European Union declared a plan to cut carbon emissions to zero by 2050 indicates that the window of opportunity for exporting gas from Israel is liable to be closed in a few more decades.
In addition, the fact that Israel wants to export gas via liquefaction facilities on Egyptian territory runs contrary to an explicit recommendation by the Tzemach Committee, which stated in 2012 that Israel’s strategic interests require that gas export facilities be located on territory controlled by Israel.
In this sense, the new idea of building the liquefaction facility near Eilat is preferable to transporting gas through pipelines in northern Sinai to the existing liquefaction facilities, because there is more security control over the territory. Another option that was previously discussed is laying another undersea pipeline from the Tamar production platform directly to the shore facilities in northern Egypt.
“It is in Israel’s interest to promote an economic, commercial, and engineering feasibility study of its current export options,” Cohen declares. “Expanding the existing liquefaction facilities in Egypt is likely to be the cheapest and most available option, but there is definitely also room to consider construction of a gas liquefaction facility in Sinai for exporting gas to Eastern markets.
“These are not just markets that consume 70% of the world’s liquefied gas. The prices there are still linked to oil, which constitutes a commercial advantage.”
Cohen believes that Israel should also seriously consider a “Poseidon project” – laying the world’s longest undersea pipeline from gas reservoirs in Israel, Egypt, and Cyprus to southern Italy via Greece. She also argues that the idea of building a liquefaction facility in Israel should be reconsidered. The main advantage of this lies in ownership of the technology and independence of other countries.
Source: globes
