NBL Noble Energy Inc

By Rory Jones in Tel Aviv and Jared Malsin in Cairo 

Investors in Israel's natural-gas fields agreed Monday to supply an Egyptian company with gas valued at $15 billion, a deal that will build on growing ties between once-hostile neighbors that now share a common enemy in the restive the Sinai Peninsula.

Houston's Noble Energy Inc. and Israel-based Delek Drilling-LP will supply 64 billion cubic meters of natural gas over 10 years from the Tamar and Leviathan fields to Egypt's Dolphinus Holdings Ltd., Delek said in a statement.

Monday's long-awaited gas deal represents a political boon for Israeli Prime Minister Benjamin Netanyahu, who has promoted exports to build diplomatic ties in the Middle East and beyond. Israeli officials hailed the deal as a step toward peace and regional cooperation.

"This is a joyous day," Mr. Netanyahu said in a statement.

The deal could raise some tough questions for Egyptian President Abdel Fattah Al Sisi. He had promised to use gas from Egypt's offshore fields to make the Arab world's most populous nation energy self-sufficient again. Now, ahead of presidential elections next month, his government faces deepening suspicions about its relations with Israel.

Egypt and Israel already have significantly increased security cooperation to deal with growing militancy in the Sinai Peninsula in recent years.

Gas deals with Israel have been politically explosive in Egypt in the past. Former President Hosni Mubarak came under attack for selling gas to Israel in the years before he was ousted in a popular uprising in 2011.

Analysts said the conclusion of the gas deal weeks before the March election was remarkable given the political sensitivity of the matter and reflects Mr. Sisi's confidence with dealing with any protests at home.

"At the end of the day, any dissent is completely dealt with," said Karim Ezzat, a Cairo-based oil and gas analyst with Pharos Holding.

President Sisi, who came to power following a military coup in 2013, is running in an election in which his only credible challengers have been jailed or otherwise sidelined.

Representatives for President Sisi, Egypt's Petroleum and Foreign Affairs Ministries didn't immediately respond to calls seeking comment. Dolphinus also didn't respond to multiple calls.

The deal follows months in which the Egyptian government hailed the new exploitation of the Mediterranean's largest offshore gas field as a transformative step for the country's economy. Egypt until 2014 was a net exporter of gas, but soaring local energy consumption outpaced supply, forcing Egypt to turn importer. Production began at Egypt's Zohr field in December and was expected to help meet the domestic demand. The Israeli gas deal complicates that picture.

"It goes to show, being a net importer or exporter is too two-dimensional," Mr. Ezzat said. "Probably what's going to happen is, there are periods of the year where you're going to be a net exporter, and there are going to be periods of the year where you're going to be an importer."

The deal to import Israeli gas and production from its own fields could help Egypt become a gas hub, analysts say, with at least some of it liquefied and exported after meeting domestic demand.

The new deal also raises questions about how the gas would be transported. Gas exports from Egypt to Israel ceased after a series of militant attacks on a pipeline across the Sinai Peninsula, where an insurgency has raged for years. The Egyptian armed forces are currently engaged in a major offensive against Islamic State militants who have killed hundreds of soldiers, police officers and civilians in recent years.

"That's going to be one of the priorities, places to keep safe, to be sure," said Mr. Ezzat, referring to the Sinai pipelines.

The agreement between the Israeli firms and Dolphinus follows a deal signed in 2016 for the Leviathan partners to supply Jordan's national power company with gas valued at as much as $10 billion. The Tamar field also already supplies some customers in Jordan.

The gas companies said one potential route of export from Israel to Egypt could be through Jordan -- which is already linked by a pipeline to the Egyptian grid -- in a scenario that would neatly tie the countries together economically. After fighting multiple wars, Israel signed peace agreements with Egypt in 1979 and Jordan in 1994.

Dolphinus, a company that represents nongovernmental, industrial and commercial consumers in Egypt, signed a preliminary deal in 2015 to import up to 4 billion cubic meters of natural gas for up to 15 years from Tamar. Monday's deal supersedes that agreement, Delek said.

Egypt had frozen plans to import Israeli gas in 2015, demanding that Israel drop an arbitration case over gas. An international arbiter ruled that the North African country's state-owned energy companies owed $1.76 billion to state-owned Israel Electric Corp., or IEC, after Egyptian exports to Israel abruptly stopped in 2012 because of militant attacks on a pipeline through the Sinai Peninsula.

It wasn't immediately clear whether the arbitration was resolved. Another option being considered for transporting the gas from Israel to Egypt would be to reverse the flow of the pipe damaged in the militant attacks, Delek said.

Noble is a major stakeholder in Tamar and the Leviathan, which has an estimated 22 trillion cubic feet of gas, or enough to supply Israel for 100 years. Other significant interest owners in the fields are Delek and Israeli firms Ratio Oil Exploration LP and Isramco Negev 2 Limited Partnership.

Write to Rory Jones at rory.jones@wsj.com and Jared Malsin at jared.malsin@wsj.com

(END) Dow Jones Newswires

February 19, 2018 15:24 ET (20:24 GMT)

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