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.