Israel's Delek sees Egypt gas supply at minimum take-or-pay level through 2021

London — Gas supply from the Tamar and Leviathan fields offshore Israel to Egypt is expected to be at minimum take-or-pay levels in 2020 and 2021, according to project partner Delek Drilling.

Gas demand in Egypt has been impacted by the coronavirus pandemic, with the North African country already producing more gas than it can consume.

Israeli company Delek is a partner at both Tamar and Leviathan -- which are operated by the US' Noble Energy -- from which gas started to flow to Egypt this year under an agreement with Egyptian buyer Dolphinus Holdings.

In a statement July 22, Delek said it had been assumed that the contractual quantities to be sold from Tamar to Egypt would be "reduced down to the minimum mandated under the agreement" in 2020 and 2021.

Under the agreement with Dolphinus, the Egyptian buyer can reduce the take-or-pay quantity to 50% of the contracted volume in a year in which the average daily price of Brent falls below $50/b.

Delek said in an earlier statement that the same is true for supplies from Leviathan, though it added volumes bought by Dolphinus could be higher than assumed.

Noble -- which this week agreed to be bought by US major Chevron -- and its partners first signed a supply deal with Dolphinus in February 2018 for the supply of a total of 64 Bcm of gas from Leviathan and Tamar to Egypt over a 10-year period.

In October last year, the contracts were extended to 15 years and total volumes contracted raised to 85 Bcm, with Leviathan gas making up more of the share of the supply mix between the two fields.

Israeli gas is piped via the EMG pipeline to Egypt which has been engineered to allow reverse flows in the Israel-Egypt direction.

But Egypt is currently oversupplied due to weak demand and the suspension of LNG exports due to low spot LNG prices. Egypt has not exported an LNG cargo since March.

Supply breakdown

Tamar started production in 2013 but only began supplying gas to Egypt this month under the agreement with Dolphinus.

Leviathan began production at the end of 2019 and started supplies to Egypt in January this year.

The Dolphinus deal represented a breakthrough for the development of Leviathan, which needed a long-term supply deal to be able to move forward.

In the amended Leviathan agreement, the field partners agreed to supply Dolphinus with up to 60 Bcm over 15 years starting from January 1, 2020, compared with a volume of 32.5 Bcm over 10 years under the original export agreement.

Volumes were expected to ramp up gradually. In the first six months, 2.1 Bcm was to be supplied, rising to 3.6 Bcm/year from July 2020 through July 2022, and to 4.7 Bcm/year from July 2022 until the end of 2034.

In the amended Tamar agreement, the Tamar partners were expected to supply 1 Bcm/year from June 30, 2020 until July 2022, rising to 2 Bcm/year from July 2022 to the end of 2034.

The amended agreements include a price set according to a formula based on the Brent oil price, including a floor price.

Delek said its average sales price from Tamar in Q2 was $5/Mcf, down from $5.28/Mcf in Q1.

The average sales price from Leviathan in Q2 was $5.04/Mcf.

In May, Delek said its revenues from the fields would be 10%-20% lower in 2020 than had been forecast and 5%-15% down in 2021.