EMG Uses Legal Tactics to Block Lease of Subsea Pipeline

East Mediterranean Gas, the owner of the underwater pipeline that connects the Israeli town of Ashkelon, with Al-Arish in North Sinai, Egypt, is blocking the use of its pipeline to transmit natural gas from Israel to Egypt. 

Tamar Partnership has signed a contract with Egypt's Dolphinus Holdings for the export of 5bn m³ natural gas over 7 years through the EMG pipeline. Last month Israel's energy minister, Yuval Steinitz, after a 9-month delay, approved the export agreement.

In a letter to Steinitz, a lawyer Neev Sever, the head of the antitrust department at law firm M Firon & Co representing EMG, raised several legal impediments to the use of the pipeline.

EMG claims that according to Egyptian legislation foreign companies are excluded from exporting gas to Egypt. Dolphinus Holdings, although represented by an Egyptian businessman, is registered in the British Virgin Islands and therefore, is not eligible.

EMG also claims that according to Israeli law it is prohibited to export gas from Israel to Egypt through the EMG pipeline.

The advocate claims that the contract between Tamar Partnership and Dolphinus "may be illegal" and "in direct contradiction of the interests of both EMG and Egypt." EMG, writes Sever, has "no intention of being party to any such illegal activity."

Sever concludes the letter by writing that EMG would welcome an opportunity for a reverse flow of natural gas in the pipeline. However "it fails to see why it would either need the use of any intermediary between itself and any of the Israeli gas producers, or why it should limit the use of its pipeline to a specific third party, such as Dolphinus."

Article 17 of the letter makes it clear that EMG might be interested in some kind of cooperation, including leasing the pipeline for gas transmission if it could also trade gas. It might be that EMG is also interested in keeping its options open as to the import of natural gas from Egypt to Israel in the future and not to lease the pipeline exclusively to a third party. 

According to sources in Delek Group, whose subsidiaries Delek Drilling and Avner are members of the Tamar partnership, negotiations between Dolphinus and Tamar are ongoing and a positive conclusion depends on political agreements between Israel and Egypt. 

Ya'acov Zalel