Egypt is in a high-stakes standoff with Israel over our USD 35 bn gas agreementas Cairo refuses to accept what amount to new “Israel first” clauses inserted by the Israeli government, reports industry publication Mees. Although Israeli Prime Minister Benjamin Netanyahu finally greenlit the stalled agreement last month, a disclosure (pdf) from Leviathan partner NewMed shows that the Israeli government inserted new conditions that would give wide-ranging powers to the Israeli state to slash exports to Egypt to protect its own domestic grid.

The new conditions include the power to unilaterally slash quantities shipped to Egypt. Starting in 2036, the Israeli Ministry of Energy and Infrastructure would have unilateral power to cut export volumes by up to 60% so that it can satisfy Israeli demand first, according to the disclosure. The supply of any quantity to Egypt is also now subject to the Leviathan operators first meeting their full quotas for Israeli consumers, with an emergency trigger that allows for an immediate reduction in exports if the Israeli market is undersupplied for more than 28 days. Egypt has yet to accept the clauses.

This would effectively transform Egypt from a primary customer with guaranteed volumes into a secondary recipient of whatever surplus remains. A contract that gives a foreign regulator the right to cut supply by more than half would leave manufacturers and households alike vulnerable to the domestic policy shifts of a neighbor with whom relations have become increasingly strained since Israel’s war on Gaza.

The terms would give NewMed the right to sell half of any additional future production increase over 2.1 bcf / day to Egypt at spot-market prices and requires them to apply for regulatory approval to boost the maximum quantities they might sell us.

A traditional gas sale agreement would give the buyer more leverage to set daily, monthly, or annual quantities they want to buy — giving the seller the obligation to meet the ask, Mees notes.

Why it matters

Egypt is positioning itself as the premier East Mediterranean energy hub on the back of factors including the return to growth of domestic oil and gas production, the consistent buildout of renewable energy infrastructure, bunkering facilities in the Suez Canal, and our gas-export infrastructure. Importing gas to power domestic manufacturers and keep the lights on for households one of the keys to that drive.

Our take

In years past, Egypt might have been forced to swallow the terms to keep the lights on, but our LNG import infrastructure gives us room to negotiate. Having four floating regasification plants in place gives Egyptian negotiators an LNG safety net, allowing them to tell Tel Aviv that we’d rather pay a premium for global LNG than tether energy security to a contract that the Israeli government can override at will.

What to watch for next: The USD 2.4 bn project to boost by 75% the Leviathan field’s capacity to increase exports to Egypt remains in limbo as Cairo withholds the final signature needed to move the needle on a final investment decision. Leviathan partners Chevron and NewMed are working toward a three-times-extended 31 January deadline to iron out any differences.

“Teams from Israel are in Cairo this week” to try to work it out, Mees reports, speculating that partner Chevron, in particular, would “likely be unhappy” if Egyptian negotiators say it would pay less for Israeli gas as a result of the clauses.

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