Al-Ahram Weekly Online   8 - 14 May 2008
Issue No. 896
Published in Cairo by AL-AHRAM established in 1875

Selling out

Exporting gas to Israel has posed more questions than the government can answer, as Sherine Nasr finds out

As Egyptian natural gas officially began flowing to Israel last week, a pact signed silently by the Egyptian General Petroleum Corporation (EGPC) and the East Mediterranean Gas (EMG) in 2005 to sell gas to Israel is now causing an uproar. By virtue of the agreement, Egypt is to export 200 million cubic feet of gas to Israel daily, which amounts to 1.5 per cent of the country's total production in the next 15 years. Although the sale price was never publicly disclosed by EGPC -- whose officials remain silent -- a leaked version of the agreement shows that the price ranges between 70 cents and $1.5 Btu (British thermal unit) in case brunt oil reaches $35 per barrel (pb).

In comparison to the selling price of natural gas by other countries, the figure is disappointing. Many natural gas exporters, such as Russia and Algeria, introduced adjustment clauses in their export agreements before the latest hikes in oil prices. Gas from Russia is sold to Europe for around $9 per Btu, while Algeria sells at $7 per Btu. In the meantime, Egyptian gas to Spain and France is sold for around $2.5 per Btu.

Now that international oil prices have hit an all time high of $120 pb, the entire deal is overshadowed by allegations of corruption and doubts about its economic viability. This is especially so, since the leaked original agreement has been repeatedly reproduced in the Egyptian press. Both Egyptian intellectuals and opposition parties are engaged in a heated debate over the worthiness of the deal.

"A fact finding committee should be summoned to answer one simple, yet crucial, question," pressed Amr Kamal Hammouda, an oil expert and head of Al-Fustat Centre for Studies. "Why sell a depleting, yet highly demanded, source of energy at a marginal price to the least welcome neighbour in the region?" Hammouda revealed that "ironically, some spot cargoes sold from the Egyptian-based Rosetta facility are sold for around $12 to $13 per Btu. In the meantime, Egypt buys gas from the Abu Qir Facility on the Mediterranean at the international price estimated at $6 per Btu." He urged that the sale price to Israel should be reconsidered because, "we are selling our gas at a ridiculous price, and are compelled to continue do so for the next 15 to 20 years."

The fact that selling gas to Israel was more a political rather than economic decision makes little amends. "Gas is a political card with deep economic implications," explained Hammouda. "Those who concluded this deal were definitely not good negotiators." According to him, negotiators should have better manipulated two important economic factors to conclude the best deal. These are Egypt's proximity to Israel which reduces transport charges to the minimum, and the fact that this gas will be used to produce more electricity in Israel. "But this did not happen," he disputed.

According to Ibrahim Kamel Essawi, former undersecretary for natural gas affairs at the Ministry of Petroleum who was present when all natural gas export deals were concluded, at the time selling gas was a necessary move. "In the late 1990s, oil production dropped and more natural gas was being explored," Essawi explained. "It was important to shift to exporting gas to ensure an influx of hard currency to cover demands for overgrowing development plans." He revealed that selling gas was also a means to continue exploration in the oil and gas field. "Otherwise, exploration activities would have come to a halt," Essawi added.

The rule was to consume one third of production locally, export one third and keep one third as reserve for coming generations. According to Essawi, Egypt's natural gas reserves increased by almost 12 trillion cubic feet in the past two decades, with proven reserves currently estimated at 75 trillion cubic feet (tcf).

But this figure may not hold water, since figures released by EGPC indicate that proven natural gas reserves are 10 tcf less than Essawi's estimation. In fact, Egypt's proven reserves of gas and oil have been a matter of debate for decades between the Ministry of Petroleum and oil experts. Those released by the ministry are often described by experts as optimistic, if not inaccurate.

"This brings us to the core of the problem: lack of transparency," protested Hammouda, who believes that the gas contract with Israel was executed in a way typical of Third World business deals. "This crucial source of energy belongs to Egyptians," he stated. "It was sold by those who don't own it to those who don't deserve it."

What makes the picture even more opaque is the fact that despite a spike in proven natural gas reserves over the past two decades, Egypt is still not considered a natural gas-rich country, argued Essawi. Topping the list of gas-rich countries are Russia with 1,700 tcf, Iran and Qatar at 900 tcf, Saudi Arabia's 250 tcf and Algeria with 159 tcf.

Growing local demand on this energy source dictated another shift in Minister of Petroleum Sameh Fahmi's natural gas policies, when a few months ago he announced that no new natural gas export deals will be concluded for the time being. "If this means anything, it indicates that Egypt's natural gas reserves are depleting and that we should have a vision and strategy to deal with such an invaluable resource," asserted Hammouda. "What is happening now is an absolute and inexplicable waste of an extremely precious natural resource."

While Essawi argues that secrecy is an indispensable component of all gas agreements worldwide, Hammouda insisted that prices are not a secret and deals should be carried out through public tenders. "The most detailed news report about the oil and gas sector worldwide is published in the Intelligence Report, so information is an integral part of this sector," he stated. "And if estimates indicate that we're running short of oil followed by gas in the course of 25 years from now, then lack of transparency about our deals will do us no good."

As arguments and counter-arguments continue, there is no evidence that price adjustments have been introduced. This comes at a time when the government is slowly, but surely, removing subsidies on petroleum products in the local market to cope with ever increasing oil prices.

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