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Egypt concerns spur Israeli gas drive

Feb. 11, 2011 at 2:26 PM   |   Comments

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TEL AVIV, Israel, Feb. 11 (UPI) -- Israel's concerns that the downfall of Egyptian President Hosni Mubarak could end the countries' 1979 peace treaty and halt supplies of natural gas from the Arab nation has spurred efforts to develop the Jewish state's offshore gas fields as soon as possible.

But the January decision by Israeli Prime Minister Binyamin Netanyahu's right-wing coalition government to double the state's share of oil and natural gas revenues has caused dismay among the energy companies involved in the offshore fields.

They include Houston's Noble Energy, which discovered the fields with an Israeli consortium led by Delek Energy, the oil and gas arm of Israel's Delek Group headed by billionaire Yitzhak Tshuva.

That ruling, overturning regulations dating from the 1950s when finding energy sources in Israel was considered a pipe dream, could impede developing the fields which contain an estimated 25 trillion cubic feet of natural gas.

Israeli officials fear the collapse of the 30-year Mubarak regime in neighboring Egypt after weeks of massive street protests will mean the end of the peace treaty that has been the cornerstone of Israel's regional policies and domestic economic policies for three decades.

Scrapping the treaty could entail cutting off supplies of Egyptian gas that began in 2008 and which amount to 40 percent of Israel's consumption, largely by power electricity generating plants.

Losing those supplies would heighten the strategic importance of Israel's own gas reserves.

The Egyptian riots were driven largely by economic grievances and demands for democratic reform but few Egyptians support the historic peace treaty Mubarak's predecessor, Anwar Sadat, signed with Israel March 26, 1979.

The events in Egypt may work in the companies' favor.

Israeli fears were heightened Feb. 5 when the gas pipeline from Egypt, which also runs to Jordan, was shut down after a bombing at a gas terminal at El Arish in Egypt's Sinai Desert that set off a massive fire.

Egypt has gas reserves of 77 trillion cubic feet of gas, three times the amount found off Israel.

Under a 15-year agreement signed in February 2008, Egypt sells Israel 60 billion cubic feet of gas a year. That costs Israel $2 billion a year.

There were protests in Egypt at the time of the deal that the gas was being sold at below-market prices. Egypt's high court upheld a legal challenge to halt the sale in February 2010 but the regime ignored it.

The gas flows through an underwater pipeline from Port Said, on Egypt's Mediterranean coast and reaches shore near Ashdod in southern Israel.

"We have to do everything to improve Israel's energy security," Infrastructure Minister Uzi Landau declared, stressing the need to push ahead with developing the new deep-water gas fields as soon as possible.

The Tamar field off northern Israel, discovered in 2009, is set to be the first to start producing, possibly as early as 2012 but more likely 2013. It contains 8.4 trillion cubic feet of gas.

Landau wants the government to back loans so financing can be found to develop Tamar. He supports exempting the field's developers from the tax hikes.

"It's Israel's obligation to remove as soon as possible every obstacle" to developing Tamar, Landau said, although he gave no hint that the hiked taxes would be reduced.

The Leviathan field, discovered in 2010, is much larger than Tamar, with an estimated 16 trillion cubic meters of gas and 1.4 billion barrels of oil. It is unlikely to start producing gas until 2013.

Between them the fields could provide all Israel's energy needs for the next two decades and transform the economy by turning the country into a gas exporter.

Self-sufficiency in gas production could mean savings of $4 billion a year.

The energy companies are fighting tooth and nail to reverse the government hikes in energy taxes that will slash the profits the firms had anticipated under the old regulations.

The threat of a cut in Egyptian gas supplies could give a major boost to their complaints Netanyahu's government was getting too greedy by boosting state profits from energy production from around 30 percent to 54-62 percent.

The government's action, the companies warned, will endanger development of the fields and scare off potential foreign investment.

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