September 1, 2015 6:20 pm JST
Analyst interview

Eni's Egyptian gas field discovery offers opportunities for Israel

JERUSALEM -- Italian oil company Eni on Sunday said it had found a "super giant gas field" off the coast of Egypt. Israeli commentators are divided on how the new discovery will affect prospects for the industry. Some see it as the end of the dream of exporting gas to Egypt, while others believe it is an opportunity to focus on the domestic market.

     Brenda Shaffer, an international energy expert and professor at Georgetown University in Washington, who is currently on sabbatical from Israel's University of Haifa, does not see the development as negative. In a recent interview with The Nikkei, Shaffer, who is also a senior fellow at the Atlantic Council's Global Energy Center in Washington, said the Egyptian gas find is an opportunity to promote regional cooperation and stability, one that will create incentives to foster growth in the Israeli gas sector while bringing benefits to local consumers.

Q: What is the significance of this huge gas find?

A: This super size gas discovery off the shores of Egypt is very significant because Egypt has gone, in the past decade, from gas exporter to gas importer. Over the last five years, Egypt has had extensive power outages which have really affected political stability in the county. President Hosni Mubarak's regime fell during the period of [widespread] power outages. His replacement, Mohammed Morsi regime, also fell during a period of extensive power outages. One of the biggest focuses of the current regime of President Abdel Fattah el-Sisi has been to stop these power outages. This is not an easy thing to do, and Egypt has actually been importing very expensive liquefied natural gas to try and keep the lights on. This has been a very expensive endeavor and [is] still not enough.

     This gas discovery is a tremendous opportunity for el-Sisi to stabilize the regime. Any precondition for economic prosperity, even basic agriculture, requires a constant flow of electricity. Suffice to say, it's very hard to have modern agriculture without electricity.

     In March of this year, there was also a huge decision by British Petroleum to invest $12 billion for exploration in Egypt. Despite the turmoil in the region -- the tremendous decline in oil prices, which has left less revenue for investments available to companies -- despite all this, Egypt remained attractive to foreign investment for energy exploration. I think [in] large part this can be attributed ... to the natural geology of Egypt which is really strong, but also [to] what the government has been doing to improve the price offered to companies, and the conditions to really attract them.

Q: How will this gas be used and what is a realistic timeline for it to become available?

A: My assumption is that it will be used mostly for the domestic market and if that's the case, this can happen quickly. It's not as complicated as international export requires. It's possible, for instance, within three years [that the gas] will be serving the domestic market, which is quick in the gas world. Because of the urgency of ... the electricity [shortage], the Egyptian government will do everything possible and provide incentives for this to happen.     

Q: Is this really the largest discovery in the Mediterranean?

A: The data is still preliminary, but from the company announcement it sounds like it is. But [being the] biggest isn't always important. I think the prospects of Israeli export to Egypt were small and overstated in the first place, so I don't think this really precludes the Israeli development of [the] Leviathan [gas field], which, like the Egyptian gas, will probably be made available for the domestic market. Leviathan as well, in the long run will, probably serve the domestic market in Israel.

Q: Are Israel and Egypt competing for the same markets?

A: I don't think it has to be a source of conflict because basically, for Egypt, most of this will go to the domestic market and most of Leviathan will go to the Israeli domestic market. I don't think it's a source of conflict. If we were looking for export projects with what is left from the domestic market requirements, then pooling these together could make a lot of commercial sense. Each domestic market needs the gas, so I don't see this as competition or a source of friction.

     Let's remember what is happening in Egypt right now. The facts are that [the Egyptians] are currently fighting the same enemies ... the U.S. is, namely the ISIS. At the same time [Egypt] has kept its peace treaty with Israel. This is a country where the Obama administration has held back arms shipments to them, and there is not at a high level of cooperation with them in the security field.

     This has left the el-Sisi regime partially isolated. Meanwhile, Russia has been trying to move in and is courting traditional American clients like ... Saudi Arabia and Egypt to fill this vacuum.

     This gas discovery is extremely significant. I personally see this as a big boost to the stability of el-Sisi's regime, along with the presence of these Western oil companies and their investments there. This is in the interests of both the West and Israel.

     I also believe that at the end of the day Jordan will import gas from both Egypt and Israel. Of course there is great commercial logic [in] common exports from both Egypt and Israel -- working together to reach various other export markets, but there would be a number of ... hurdles along the way.

Q: Are these gas supplies going to reach Far East markets?

A: This discovery could indeed be relevant to Asia. There are two LNG facilities in Egypt, one which is currently not operating at all, while the other one is operating at 20-40% capacity depending on the period. Asian markets that are far away are reachable once the gas is turned into liquid ... and could be shipped. ... Some of this new gas, in the future, could become available to those facilities, so this does create more opportunity for LNG facilities to get back to the Asian market. Asian markets are reachable and LNG could be shipped to such distances.

Interviewed by Nikkei staff writer Eli Garshowitz

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