Tuesday,12 December, 2017
Current issue | Issue 1233, (12 - 18 February 2015)
Tuesday,12 December, 2017
Issue 1233, (12 - 18 February 2015)

Ahram Weekly

Egypt 'doesn't mind' Israeli gas

Officials are talking with the American Noble Energy Company, operator of Israel's gas fields, in a bid to address the country's energy crisis, reports Amira Howeidy

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Al-Ahram Weekly

A week after Reuters broke the news of talks between the Egyptian Natural Gas Holding Company (EGAS) and the American Noble Energy Company, which operates Israeli gas fields, the Ministry of Petroleum appears to publicly support a new policy that would allow the importation of Israeli gas.

In 1979, Egypt became the first Arab country to sign a peace agreement with Israel. Despite full diplomatic relations, official niceties and, many years later, US-encouraged commercial and business agreements between the two former enemies, normalisation with Israel remained taboo and was rejected by the wider public.

So when former president Hosni Mubarak approved a 20-year agreement to export Egyptian gas to Israel in 2005 it caused a political uproar that continued until his ouster in February 2011.

Not only was Egypt pumping natural gas directly to Israel, it was doing so at below-market prices through East Mediterranean Gas (EMG), then co-owned by Mubarak's friend Hussein Salem and former Israeli Mossad agent Yossi Maiman, who then sold the gas to Israel at higher rates, pocketing the difference.

In the aftermath of the uprising that toppled Mubarak in 2011, Egypt unilaterally terminated this agreement, citing failures by the Israeli side to meet payment deadlines in violation of the contract.

The decision was met with relief and a sense of revolutionary achievement, but things did not end there. When Mubarak was referred for trial in 2011, the gas deal was added to the corruption charges (a Cairo court dismissed the charges three months ago because the charges were too old to fall within its jurisdiction).

More than four years later, Egyptian officials are negotiating a reversal of the gas deal through the very same pipeline that exported the gas to Israel, according to Reuters and official statements attributed to top-level officials in the ministry of petroleum.

The sub-headline of the pro-government Al-Masry Al-Youm newspaper's lead story on 3 February proclaimed: "Egypt to confront summer blackouts with Israeli gas." On 7 February the same newspaper quoted a minister who refused to be named as saying that Egypt "doesn't mind" importing gas from Israel."

He added that the "sovereign authorities," an euphemism for the military, intelligence and presidency, had followed the talks between EGAS and Noble Energy but had not yet given them the go-ahead for an agreement.

Officials in the Ministry of Petroleum and EGAS could not be reached for comment.

The cautiousness of the gradual and not yet final announcement of the news is an acknowledgment of the political sensitivities involved in this U-turn. The opacity and secrecy surrounding the talks provides scarce information, which critics say is reminiscent of deals under Mubarak.

"I hope we don't repeat the mistakes of the past," said Nasserist columnist Abdallah Al-Senawi, a supporter of president Abdel-Fattah Al-Sisi.

"[Mubarak's] relations and normalisation with Israel were never debated, no one was held accountable, and the truth was never fully disclosed to the public. Today we are reversing the equation and there are so many unanswered questions about the political and business aspects of importing Israeli gas."

What prices are being discussed? Do they meet international standards? Are there alternatives to Israel? And what are the channels for serious debate in the absence of a parliament in Egypt were some of the questions Al-Senawi asked. The first parliament elected after Mubarak's ouster was dissolved in June 2012.

Egypt's energy crisis began in the aftermath of the 2011 uprising with gas production companies reducing exploration and therefore production. Existing gas fields, which have an average lifespan of five to six years, are aging and aren't being maintained. Between increasing demand and dwindling supply a gap has emerged.

Attempts to address this gap by supplying power stations with fossil fuel only partially solved the problem because a significant portion of these stations operate with gas.

Energy shortages then led the government to redirect all available gas to the domestic grid, stripping international gas companies BG and the Spanish-Italian Union Fenosa Gas (UFG), which own and operate the country's two liquefaction plants jointly with EGAS, of their shares.

Lacking the necessary supplies to keep their business going, UFG's liquefaction plant in the Delta governorate of Damietta fell idle in 2012. In 2013, UFG filed a complaint with the International Chamber of Commerce, accusing the Egyptian government of failing to commit to its agreement by failing to supply gas.

EMG, the company operating the Egypt-Israel gas pipeline, had already filed an arbitration case against Egypt demanding $8 billion in compensation for cancelling the supply of gas to Israel in 2011.

In 2013, serious debate in the gas business focused on Israel, by now a gas-producing country, as the answer to such problems. Perceived as being faster and easier to import natural gas from Israel, which also needs a market as large as Egypt's, UFG signed a letter of intent (LOI) with the Israeli Tamar gas field to supply it with gas.

BG followed with a LOI with partners in the Israeli Leviathan gas field. However, for such letters to become fully-fledged agreements and come into effect they have to be approved by the Egyptian regulator.

Faced with significant fines in the two arbitration cases and the serious implications of the worsening energy crisis, Egypt responded by placing three conditions on the deals: resolving the arbitration cases against Egypt, clinching a value-added agreement with the government, and the approval of the gsovereign authorities."

The new development now is that Egyptian officials are talking to Noble Energy, a sign that long-term agreements with partners in the Israeli gas fields are close to realisation.

According to an informed source in one of the international gas production companies involved in the talks, the discussions are about importing seven billion cubic metres of natural gas daily to Egypt in a long-term agreement of 15 years.

If the parties agree to export the Israeli gas via the existing offshore pipeline it could start flowing into Egypt's grid as early as this summer. But because Israel doesn't have an immediate surplus to cover Egypt's needs so soon, the quantities will be small.

"Israel won't be able to supply Egypt with the required volumes before the end of 2016 or 2017," said the source, who spoke on condition of anonymity because he was not authorised to speak to the press.

The period between 2015 and 2017 "will be the darkest in Egypt," the source added.

Noble Energy, the partner in Tamar and Leviathan, wants to construct two additional conduits under the sea and underground between Israel and Egypt to ensure a consistent and safe supply. The existing offshore pipeline that largely extends across North Sinai has been attacked multiple times by militants since 2011.

However, the idea of two additional pipelines was not conceived just to restore the level of gas production before the crisis emerged in Egypt. Because Israel's gas surplus needs to be liquefied in order to be exported to Europe, it wants to do so via Egypt's two liquefaction plants.

Egypt's gas production companies typically produced 4.7 billion cubic metres daily while the country needs seven billion cubic metres. The difference was compensated by mazot (liquefied fuel.)

There is now no known government strategy to address the fearful blackouts of the approaching summer, which are expected to be worse than during the previous one. And it appears that for now the government is resorting to Arab nations for help in managing the year ahead.

In December, Algeria agreed to export six natural liquefied gas shipments of 850,000 cubic metres each to Egypt during 2015. The Ain Sokhna Port at the Suez Canal was identified as the most suited to receive these shipments, but the terminal isn't ready yet thus delaying their arrival.

However, suffering from an increase in domestic consumption, Algeria has reduced its gas exports since 2005 and isn't viewed as a future gas provider to Egypt.

Egypt is engaged in talks with Saudi Arabia and Kuwait to import petroleum products to cover the energy gap this year, according to Al-Masry Al-Youm,which did not cite figures.

This might delay an expected backlash resulting from signing a long-term agreement to import Israeli gas.

"Egypt's opposition groups are overstretched with serious domestic issues and arenft paying attention to this development or don't want to get into a confrontation with the authorities for now," said Wael Gamal, an economics columnist and researcher.

"So the timing is in the government's favour to go ahead with an agreement now if it wants."

But this will not prevent questions about the impact of the dependence on Israeli gas as a main source of energy on Egypt's national security, Gamal added.

There are also questions that run deeper, to the psychological barrier many Egyptians still feel about Israel.

"How is one supposed to feel after drinking a cup of tea made on a stove operated by Israeli gas?" Samer Atallah, a professor of economics at the American University in Cairo, asked on Twitter.

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