Egypt, Israel, EU eye political framework ahead of commercial gas supply deals

Egypt, Israel and the EU were working toward a trilateral agreement to allow for the export of Israeli gas to Europe, a spokesperson for Israel's energy ministry said June 6.

The EU has intensified efforts to find alternative gas suppliers since Russia's invasion of Ukraine in February, with Israeli gas seen as a potential new source for Europe.

However, there is no infrastructure in place to allow for direct Israeli gas supply to Europe, meaning deliveries would have to be facilitated via Egypt's two LNG plants.

In emailed comments to S&P Global Commodity Insights, the Israeli energy ministry spokesperson said a joint working group had been established following talks between Israel's energy minister Karine Elharrar and EU energy commissioner Kadri Simson, which includes Egyptian representatives.

The Israeli energy ministry's general director Lior Schillat is leading the talks on behalf of Israel.

"Professionals from the ministries are working to formulate a trilateral agreement between Israel, the EU, and Egypt, which will reflect the basic framework set in the existing agreement between Israel and Egypt in the matter of gas exports," Schillat said.

"The political framework agreement will allow the gas companies to subsequently sign commercial agreements between them," he said.

'Most relevant' option

Schillat said the only viable possibility to export Israeli gas to Europe was via Egypt.

"A pipeline already exists from Israel to Egypt, and under the previous agreement to increase export volumes to Egypt, it may be used for additional quantities to be exported," he said.

"A pipeline from Israel to Europe does not exist, and therefore the most relevant option is to transport gas to Egypt, to its two liquefaction plants. From Egypt, it will be shipped to Europe as LNG, where it will be again gasified."

Israel has become a key regional gas supplier in recent years and now exports to both Egypt and Jordan, while Egypt last year raised gas output to 71 Bcm, according to the energy ministry, up 10 Bcm year on year.

Egypt has two LNG export facilities -- the 7.2 million mt/year (9.9 Bcm/year) Shell-operated Idku facility and the smaller Eni-operated 5 million mt/year Damietta plant.

The two plants are considered key to European efforts to source additional LNG, including from Israel, which since March has increased its supplies to Egypt through a new route.

Israeli gas was previously delivered to Egypt only via Israel's own transmission system and the now-reversed offshore East Mediterranean Gas (EMG) pipeline.

The new arrangements with Egypt allow for the export of Israeli gas entering the Jordan gas transmission system at Beit She'an to be piped southward into Egypt at Aqaba via the Arab Gas Pipeline (AGP).

The Israeli energy ministry said exports via the route were expected to be 2.5-3 Bcm in 2022 and could increase to 4 Bcm in subsequent years.

Egyptian exports

Egypt's LNG exports have already reached 5.6 Bcm of gas equivalent so far in 2022, with some 55 cargoes delivered to export markets, according to data from S&P Global.

Europe and Turkey have become the markets of choice for Egyptian LNG as European gas prices trade at a premium to spot Asian LNG prices.

Turkey has taken 15 cargoes so far in 2022, followed by Spain (eight), France (six), and Greece, the Netherlands, and the UK (two each), the data showed.

Single cargoes were also delivered to Belgium, Croatia, Italy, Malta, and Lithuania.

For most of 2021, markets in northeast and south Asia took the bulk of Egypt's LNG until European gas prices moved to a premium over spot Asian LNG prices.

Egypt said in February that both LNG export plants were operating at "full capacity" and making the most of sustained high spot LNG prices.

The S&P Global Platts benchmark JKM price for spot LNG into northeast Asia reached a record high $84.76/MMBtu in early March.

The JKM has averaged $29.46/MMBtu in 2022 and was last assessed at $23.54/MMBtu on June 3.

Egypt is relatively exposed to spot LNG prices, so the current price strength is beneficial to the country, whose LNG exports totaled 9.5 Bcm in 2021, according to S&P Global data.