Israel may come to regret dragging its heels on the development of the Leviathan offshore gas field, as a major new discovery in Egypt could limit its future export opportunities.

Italian energy firm Eni announced at the end of August 2015 it had discovered gas in the Zohr field in its Shorouk block off Egypt’s coast. Although reserves at the field are not yet proven, it is suggested that Zohr could be the largest ever gas find in the Mediterranean Sea, with up to 30 trillion cubic feet of lean gas.

This was unwelcome news for Israel’s Delek Group and Texas-based Noble Energy, the majority owners of the Leviathan gas field off the coast of Israel. The sponsors have been trying for several years to reach an agreement to development Leviathan. The field contains some 22 trillion cubic feet of gas and, until the Zohr reserves are proven, is the largest gas field in the region.

Noble and Delek had been banking on Egypt – which has suffered instability in the past few years and has energy demand far outstripping its supply – being one of the major offtakers of gas from Leviathan. The memorandums of understanding signed by the Egyptian government to buy Leviathan gas, and gas from Cyprus, now look shaky. Jordan was also looking to buy Egyptian gas, but could instead turn to its other neighbour.

Knesset delays

The Leviathan discovery was made back in 2010 but has yet to gain final consent from Israel’s Knesset - the country’s Parliament. A long running dispute has centred around Delek and Noble’s dominance of upstream gas reserves in the country. Israel’s anti-trust commissioner last year claimed that the sponsor’s interest in Leviathan and an assortment of other Israeli fields constituted a monopoly and required that certain ownership stakes were sold.

In mid-August the Knesset symbolically approved the framework for Delek to sell down its stake in the Tamar field and both sponsors to sell their stakes in the smaller, earlier stage Karish and Tanin gas fields. Despite attempts by the government to push through this deal, it is still to gain final approval from parliament.

“It is imperative that the government of Israel follow through on this approved framework without further delay,” Noble Energy's chairman, president and CEO David Stover said in a statement at the time. Though the government has approved the framework, the developers are still waiting for a final vote in the Knesset before the agreement can be actioned.

“It’s going to get bogged down in the politics of it for at least another seven months,” Gal Luft, co-director of the Washington-based Institute for the Analysis of Global Security, commented. “I don’t expect to see any definitive action from Israel’s Knesset – in terms of approving development of Leviathan – on this before the middle of next year.”

Egypt's opportunity

Despite delays, Leviathan could still be producing gas before Zohr. Eni hopes to make a final investment decision on Zohr this year, is targeting drilling to start as early as 2016, with the field to be operational in the following few years. Many see this as an ambitious timeline.

“Egypt has its own issues with upstream development; less in terms of regulatory challenges and more technical,” Luft said. “They’ve announced the discovery but there’s plenty that needs to happen between now and actual production. The operational date of Zohr for 2019 is vastly optimistic.”

Multiple changes of government in Egypt following the 2011 revolution, and continued concerns over political stability long-term, are a worry for investors. The administration of President Abdel Fattah al-Sisi has been keen to attract international investor and fast-track energy projects however, and is likely to want to expedite Zohr to help firm up supply for its fleet of planned new gas-fired power plants.

Despite its eagerness to bridge its energy gap, the government still has some way to go before it fully restores investor confidence. Egypt has a number of developed onshore gas fields, but the government is still paying outstanding receivables, owed for many years, to several oil and gas companies.