The quantity of proved reserves in Egypt is estimated at 65 TCF and there is a potential for further significant discoveries. In 2015, the Zohr natural gas reservoir was discovered in Egypt, but as of the report publication date of the Company’s 2016 Annual Report, the size of the recoverable reserves have yet to be published. The Zohr reservoir is in the development stage and the estimation is that its initial development stage will be completed by 2018, then production and sale of natural gas to the local Egyptian market will begin. The reservoir may in future be a significant natural gas supplier to the relevant Egyptian export market from Israel and thereby affect the ability of the Partnerships to export natural gas from their reservoirs.
The Company estimates that in 2016 the local production in Egypt was 40-45 BCM whereas the local demand was higher than 50 BCM. In addition to natural gas for local use, Egypt has two natural gas liquefaction facilities to manufacture LNG for export, with a total liquefaction capacity of 12.2 tons of LNG annually for which 18-19 BCM of feed gas is required annually, and which as of the report publication date operate at low capacity or do not operate at all, because of the shortage of feed gas in Egypt. The projected demand for the local Egyptian market in 2020 ranges between 65 BCM and 75 BCM, excluding the natural gas required as feed gas for liquefaction in the liquefaction facilities.
To the best of the Company’s knowledge, to overcome the natural gas shortage in Egypt, the Egyptian government is acting in several parallel channels, including encouraging the development of existing discoveries, encouraging natural gas exploration in Egypt and importing LNG. The natural gas exploration operations being promoted by the Egyptian government may increase and accelerate the natural gas exploration operation in Egypt and therefore additional natural gas discoveries may be made in Egypt.
Regarding the import of LNG, two active floating LNG gasification facilities are currently used in Egypt to import natural gas, which are located in the Suez Canal. The estimation is that Egypt also purchases shipments of LNG, which are gasified in Jordan and then transferred to Egypt through the existing pipeline between the two countries.
For information regarding agreements to export natural gas to Egypt, see the Company’s 2016 Annual Report sections 1.7.13(E)(1)b and 1.7.13(E)(2)b.
Delek is directly and indirectly promoting different alternatives to export natural gas through the EMG pipeline, either by signing an agreement for transfer fees or through a transaction with the rights holders of the EMG pipeline, and/or through the existing gas pipeline between Jordan and Egypt and/or a special pipeline to be construction as part of the INGL transmission system and connected to Egypt in the Kerem Shalom region.
In order to overcome the shortage, the Egyptian government has initiated activities in a number of directions: encouragement of exploration in Egypt, development of existing discoveries, and import of natural gas.
Tamar Partners and Union Fenosa Gas have signed a non-binding LOI to negotiate the supply of 4.5BCM/Y (435 mmcf/d) per year for 15 years, with an option to increase the supply up to 7BCM/Y (677 mmcf/d), from Tamar to UFG’s liquefaction facility (Damietta) in Egypt.
On June 27, 2014, a non-binding letter of intent was signed between the Leviathan partners and BG International Limited, which was acquired in 2015 by Shell, under which the parties confirmed their intent to negotiate an agreement for the supply of natural gas from the Leviathan project by the Leviathan partners to Shell, to supply Shell’s liquefaction plant in Idku, Egypt. The estimated scope of the Binding Agreement, if signed, is for annual supply of 7 BCM over 15 years. The terms of the Binding Agreement have not yet been agreed upon, and the parties are continuing to negotiate for a Binding Agreement while assessing options to significantly increase the annual supply set out in the letter of intent, among other things, because, to the best of the Partnership’s knowledge, the maximum annual capacity of the liquefaction facilities could exceed 10 BCM. The parties are also assessing the revised price and linkage formula, and alternatives for infrastructure to export natural gas to Egypt.
The Company estimates that the demand for natural gas on the local Jordanian market in 2020 is expected to be 5-6 BCM annually, based on the estimates of external consulting firms. Jordan currently leases a floating gasification facility several kilometers south of Aqaba for the import of natural gas.
To the best of the Company’s knowledge, in 2015 Jordan signed several short-term agreements to import LNG in a volume of 3 BCM annually and in 2016, Jordan consumed 3.5 BCM natural gas mainly by importing LNG. Due to the close geographical proximity between Israel and Jordan, a relatively small investment is required to connect the INGL pipeline to the Jordanian pipeline at a point on the border between the countries.
For information regarding agreements signed for the supply to Jordan, see the Company’s 2016 Annual Report sections 1.7.13(E)(1)b and 1.7.13(E)(2)b.
Noble has signed (on behalf of the Leviathan Partners) an offtake agreement to supply 45 BCM/Y of natural gas to the National Electric Power Company of Jordan for 15 years.
Cyprus is almost completely dependent on imported oil products and electricity production in Cyprus is mainly based (90%) on burning oil-based products, such as diesel fuel. Cyprus also has difficulty in connecting to the European energy infrastructure due to its geographic location and being an island.
In 2007, the Cypriot government set up the Natural Gas Public Company (“DEFA”), which is exclusively responsible for the import, storage, marketing, transportation, supply and trade of natural gas in Cyprus, including management of the Cypriot natural gas distribution system. Under regulations established in 2007 concerning the Cypriot natural gas market, this gas company has exclusivity to import and market natural gas in Cyprus.
Currently, Cyprus does not use natural gas. However, the Aphrodite discovery created a possible local source of natural gas in Cyprus, but due to the expected volume of investments required to develop the field and the limited size of the potential Cypriot local market, developing the discovery and supplying natural gas to the Cypriot market apparently depends on the ability of the Cypriot authorities to promote the construction of export infrastructure to justify development and commercialization of the discovery. In the absence of relevant regulation in Cyprus with respect to natural gas export facilities, it is impossible to estimate how additional discoveries, if any, could affect the manner of exporting gas from Cyprus and the competition, should it develop, with respect to the local market and access to export infrastructure.
To the best of the Company’s knowledge, the Cypriot government and electric company are taking steps to promote replacing fuel-based products with natural gas to produce electricity. As of the report publication date, Delek, together with the other Aphrodite reservoir partners, is negotiating with DEFA for an agreement to supply natural gas to Cyprus from the Aphrodite reservoir.
In 2015, the natural gas consumption in Turkey was 48 BCM and the estimation is that in 2016 it was 46 BCM after increasing by more than 10 BCM since 2009. Turkey is completely dependent on importing natural gas and LNG as a solution for its local demand for natural gas. Turkey is acting to diversity its sources of supply and to become a transition country of natural gas by pipeline to Central and Western Europe, and it recently started operating a floating LNG gasification facility that will, to a certain degree, enable it to increase the capacity to import LNG.
Delek is negotiating with various entities on the Turkish market for the supply of natural gas to the Turkish market from the Leviathan reservoir, and with officials in the Turkish government regarding the export of natural gas to Turkey in a project that will include construction of an offshore pipeline from Israel to Turkey for the sale of natural gas to the Turkish market.