Israeli Officials expressed Concerned About Gas Discovery in Egypt

Israeli officials expressed concern that the discovery of an extensive gas field off the coast of Egypt could upend Israeli development of its energy resources.

The Italian energy company Eni SpA on Sunday announced the discovery of the largest gas field in the Mediterranean, threatening a deal between the Israeli government and developers that was based on expectations of substantial gas exports to Egypt. That deal already was bogged down in disagreements about regulation, pricing and profit-sharing that have delayed the start of production.

“The discovery of the Egyptian gas field is a painful reminder that while Israel has been asleep at the wheel and delaying final approval of the gas deal and additional exploration, the world is changing before our very eyes with implications for export possibilities,” Israel’s Energy Minister Yuval Steinitz said after Sunday’s announcement.

Israel discovered large natural-gas resources off its shores for the first time in recent years, raising hopes the country could reduce its dependence on foreign energy. The Leviathan field, found in 2010, had been considered the largest in the Mediterranean until the discovery in Egypt. Israel found a second, smaller gas field, Tamar, in 2009. Though Leviathan is still untapped, plans to export the gas to Egypt have, until now, figured as a key element in the Israeli plans to develop the field.

The Egyptian supply may still be years away. The oil ministry has said production is expected within three years.

The find spares Egyptian President Abdel Fattah Al Sisi the political liability of doing a gas deal with Israel. Despite decades of normalized relations, the Egyptian public has never warmed to the idea of close ties with Israel in business or any other realm.

A senior Egyptian oil official said that while the gas discovery won’t affect negotiations to buy gas from Israel, final approval for any deal isn’t likely to come soon.

“It will be very hard now to convince the public of the need of the Israeli gas after the latest discovery,” he said.

That means Israel will have to look elsewhere for potential export markets, amid concerns that competition from Egypt could lower prices and profitability and damp incentive for the main developers of Leviathan, Texas-based Noble Energy and the Israeli Delek Group.

David Stover, chief executive of Noble, said the competition from Egypt could help spur Israeli regulators to approve a framework that would let Noble move forward with an expansion of its Tamar gas field and the development of Leviathan. Mr. Stover said he is confident the region’s demand for natural gas, as well as demand from export markets in Europe and Asia, is substantial enough to support production from both gas fields.

“The need and demand for our gas is still there,” Mr. Stover said. “This does not change that.”

Gideon Tadmor, chairman of Delek Drilling, a subsidiary of Delek Group, said the new Egyptian field would serve local demand so it wouldn’t compete with gas from Leviathan, earmarked for export from Egypt to Europe. Leviathan holds an estimated 22 trillion cubic feet of gas, while Eni said the field off Egypt may hold 30 trillion cubic feet, enough to supply Egyptian needs for decades.

“This discovery has not closed the window of opportunity, the window of export to Jordan, Egypt and also Turkey,” Mr. Tadmor told an economic conference in Tel Aviv on Tuesday. “The great advantage of Tamar and Leviathan is their timetables. The problem is not in Egypt, but in Jerusalem. It’s all in our hands.”

Share prices for the two companies dropped sharply the day after the Egyptian discovery was announced.

“The announcement by Eni makes the future of Leviathan more complicated, to say the least,” said Oded Eran, a former diplomat and a senior research fellow at the Institute for National Security Studies in Tel Aviv. “In the absence of a major buyer, the current owning consortium will find it difficult to finance the development of the field.”

Egypt needs the energy.

In the hottest months of 2014, Cairo went dark on a daily basis as energy consumption spiked in the nation of 88 million. Mr. Sisi, who assured Egyptians he would restore the rickety economy, sought energy help from Europe and Israel in the form of power plant contracts and negotiations to import gas.

Egypt largely averted frequent blackouts this summer by shifting energy from the industrial sector to the residential sector—a signal that the government had become increasingly aware of the hardships for ordinary citizens in a country where many are struggling just to subsist.

Now prospects of the big gas field could save Egypt from making such choices in the future and may kick-start a sluggish industrial economy.

Egyptian officials have made their enthusiasm for the gas discovery all too clear.

Prime Minister Ibrahim Mehleb said the discovery is “a message from God that he stands with Egyptians and Egypt,” adding that it will dramatically alter the country’s energy prospects.

Meanwhile, Israeli Prime Minister Benjamin Netanyahu is preparing to present the parliament with a deal reached between the government and Leviathan’s developers. But the plan has been delayed by concerns that the developers will benefit from a monopoly with high profits that deprive the Israel government of needed revenues. Israel’s antitrust commissioner resigned in opposition to the deal.

Government approval of the Leviathan development plan was based on arguments that exporting gas to Egypt would serve Israel’s interests by bolstering the Egyptian government, a key ally against Islamist extremists, and offering an alternative to Iran as a supplier of Egypt’s energy needs. The developers’ plans for Leviathan envisioned sending gas to facilities in Egypt where it could be converted to liquefied natural gas for export to Europe.

Analysts said Israel could potentially find alternative buyers in Turkey, Cyprus or Greece, though such exports faced political and other obstacles. Planned deals to sell natural gas to Jordan and the Palestinian Authority have stalled because of the regulatory disputes and delays that have plagued the development of the Leviathan field.