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Israel prepares gas exports to Egypt after pipeline share transfer

London — Gas exports by pipeline from Israel to Egypt are on course to begin by the end of 2019 after a 39% stake in the idled EMG pipeline was transferred at the weekend to a new owner, paving the way for supplies to begin.

Israel's Delek Drilling -- together with US producer Noble Energy and Egyptian-owned Sphinx -? agreed in September last year to buy the stake in the EMG pipeline for $518 million as part of plans to use the pipeline in reverse for Israeli gas to flow to Egypt.

On Sunday, Delek said the deal would close in coming days after the purchased EMG shares were transferred from the sellers to the Delek/Noble/Sphinx group, named EMED.

Delek said "no conditions precedent remain for the EMG transaction", adding that upon the transfer of the full amount of the payment from an escrow account to the sellers -- which was expected in coming days -- the transaction would be closed.

Following the closure, EMED will hold the 39% stake in the pipeline together with Thailand's PTT Energy Resources Company (25%), privately-owned Mediterranean Gas Pipeline Ltd (26%) and the state-owned Egyptian General Petroleum Corporation (10%).

Yossi Abu, CEO of Delek Drilling, said: "The closing of the EMG transaction marks the dawn of a new era for the Israeli energy market ?- Israel's transition to the status of a regional natural gas exporter."

First deliveries were expected in January through the EMG pipeline that has been engineered to allow reverse flows in the Israel-to-Egypt direction.

Egyptian hub

The EMG line started operations in 2008 to flow Egyptian gas to Israel and ran until 2012 when operations were halted as Cairo's gas production began to decline after the Arab Spring the previous year.

The EMG pipeline has a design capacity of 7 Bcm/year ? or 19 million cu m/d.

Egypt was a fairly stable exporter of both LNG and pipeline gas until the Arab Spring, after which its domestic gas production slipped due to a lack of new investment.

It began importing LNG in April 2015 to fill the growing supply/demand gap, though with the rapid production increase at Eni's Zohr field, the country has become an exporter again and at the end of 2018 halted LNG imports.

Egypt is now positioning itself as a future hub for LNG exports, and surplus Israeli gas production could be supplied to the two LNG plants for export to global markets.

Expanded deal

Last month, the partners in the major Tamar and Leviathan gas fields offshore Israel agreed to expand and extend their gas supply agreement with Egyptian company Dolphinus Holdings.

Noble, Delek and their partners first signed a supply deal with Dolphinus -- an Egypt-based gas supply company -- in February 2018 for the supply of a total of 64 Bcm of gas from the two fields to Egypt over a 10-year period, which was valued at some $15 billion at the time.

The gas to be delivered to Dolphinus is expected to be used mostly for supplying large industrial and commercial customers.

The contracts have now been extended to 15 years and total volumes contracted raised 34% to 85 Bcm, with Leviathan gas making up more of the share of the supply mix between the two fields.

The supplies have also been re-characterized as 'firm' rather than 'interruptible' meaning the buyer is committed to taking a guaranteed volume under take-or-pay arrangements.

Delek's Abu said Sunday the Leviathan project was moving ahead on schedule and below planned budget.

"We expect to begin piping the gas from Leviathan already before the end of the year," Abu said.

The combined gas reserves at Tamar and Leviathan are estimated at some 900 Bcm, with Tamar to date serving only the domestic Israeli gas market.

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

The amended agreements include a take-or-pay mechanism with the price set according to a formula based on the Brent oil price including a "floor price", Delek said.

-- Stuart Elliott, stuart.elliott@spglobal.com

-- Edited by Dan Lalor, daniel.lalor@spglobal.com