UPDATE 2-Egypt wants arbitration resolved to allow gas exports from Israel

Wed May 14, 2014 1:19pm EDT

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(Adds Union Fenosa Gas comment, ENI not commenting)

CAIRO May 14 (Reuters) - Egypt will only agree to an arrangement that would see gas exported from a field in Israel via a liquefied natural gas terminal in Egypt if international arbitration is resolved, an apparent reference to a dispute with the terminal operator.

According to a letter of intent signed earlier this month, the partners in Israel's Tamar natural gas field would export up to 2.5 trillion cubic feet of gas over 15 years via the plant in Damietta operated by Union Fenosa Gas - a joint venture between Spain's Gas Natural and Italy's Eni.

The Union Fenosa Gas plant went idle in 2012 due to a lack of gas supply from the government in Egypt, where fuel shortages have prompted the authorities to redirect gas into the domestic grid.

The LNG plant filed a complaint with the International Chamber of Commerce last year, alleging a state partner had failed to comply with the contracts.

In a statement issued by the oil ministry on Wednesday, an official said there could be no Egyptian agreement to the scheme set out in the letter of intent without "resolution of all pending trade arbitration cases".

Texas-based Noble Energy, which has a 36 percent stake in Tamar, said the signatories hoped to finalise a binding agreement within six months, though any deal will require regulatory approvals in Israel and Egypt.

"With all the caution necessary in such cases, we see as positive an announcement of this nature," said a spokesman for Union Fenosa Gas, who did not want to be named, under company policy.

"While we haven't received a concrete proposal on this, we would like to believe that this means a clear and real signal of a desire to negotiate," he said. He also said that Union Fenosa Gas has always been open to talks and negotiation to resolve the conflict.

The oil ministry statement reiterated Cairo's position that Egypt's permission must be obtained for the agreement to proceed. This will only happen "if the deal realises high added value for the Egyptian economy", the official said.

ENI declined to comment.

(Writing by Tom Perry and Shadia Nasralla; Additional reporting by Stephen Jewkes in Milan and Jose Elias Rodriguez in Madrid; Editing by David Holmes and David Evans)

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