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Israeli gas deal puts serious crimp in Cyprus’ game plan

30 June 2014

Israel is in the preliminary stages of signing an agreement to supply British multinational oil and gas company BG group in Egypt with gas via a new undersea pipeline yet to be built by BG, the ‘Financial Times’ reports.

The deal will see Israeli gas pumped directly from the Leviathan field off Haifa, northern Israel, to BG’s liquefied natural gas plant in Idku, Egypt, which has been affected recently by acute gas shortages on the Egyptian market.

Israeli companies Delek Drilling and Avner Oil Exploration own 45% of Leviathan, US Company Noble Energy owns 40% and another Israeli company, Ratio Oil Exploration, holds a 15% stake.

The investors in Leviathan said on Sunday in a filing to the Tel Aviv Stock Exchange and Israel Securities Authority that they had signed a non-binding letter of intent with BG to supply it with about 7bn cubic meters of gas a year over 15 years

In April this year, ‘Reuters’ reported that Israel’s drive to export its new-found natural gas could help to rebuild strained ties with former regional allies Egypt and Turkey, but could deprive Europe of a precious alternative to Russian gas.

Israel has in recent months already signed energy deals with Jordan and the Palestinian Authority, though relations with the Palestinians are at a low ebb, and now needs to expand its export horizons to cash in on its huge energy discoveries.

In March, Turkish newspaper’ Hurriyet’ said that Noble and Delek, the senior partners in Israeli gas concessions, would discuss with four Turkish companies – Zorlu, Enka, Turcas and Calik – the possibility of piping Israeli natural gas to Europe via Turkey.

‘Hurriyet’ said a pipeline – costing an estimated $2bn – would be the most cost-effective means of exporting gas to Turkey, compared to an onshore LNG plant at Vaslikos, South Cyprus that is estimated to cost at least $10bn.

These new developments have put Israel’s previous plans to pump its gas reserves into a future export plant in Cyprus on the back burner, seriously undermining the cash strapped island’s ambitions to become a global player in the gas market.

A Cypriot LNG export plant was due to deliver at least 5 million tonnes a year to Europe and Asia, allowing Europe to reduce its growing dependency on Russia, which has become of particular concern since the crisis in Ukraine has created a chilling effect on East-West relations.

In early January, Noble Energy, realising that discovered reserves in Bloc 12 of South Cyprus EEZ were insufficient for an LNG plant, which has fuelled speculation as to how the island’s gas reserves could be exploited, said that the plan might end up back on the drawing board.

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