Tuesday,19 June, 2018
Current issue | Issue 1382, (22 - 28 February 2018)
Tuesday,19 June, 2018
Issue 1382, (22 - 28 February 2018)

Ahram Weekly

The deal and beyond

An agreement allowing the Egyptian private sector to import Israeli gas is creating controversy, writes Niveen Wahish

 

A deal under which the private sector will import Israeli gas was announced this week. Delek Drilling, an Israeli company involved in exploration, development, production and the sale of natural gas and condensate, and Noble Energy, a US petroleum and natural gas exploration and production company headquartered in Texas, announced the signing of two 10-year term agreements to export gas from Israel to Egypt via Dolphinus Holdings, an Egyptian consortium of private, industrial and commercial consumers. According to a press release by Noble Energy, “these agreements, one for natural gas from Leviathan and one from Tamar, each provide for total contract quantities of 1.15 trillion cubic feet of natural gas.”

Scheduled to start by the end of 2019, “sales volumes under the agreement associated with the Leviathan field are anticipated to begin at a firm rate of approximately 350 million cubic feet of natural gas per day (MMcf/d)”, said the press release. For the Tamar agreement “sales volumes are anticipated to begin at an interruptible rate of up to 350 MMcf/d, dependent upon gas availability beyond existing customer obligations in Israel and Jordan.”

The agreement has been in the pipeline since early 2015. What finally made it possible was the issuing of the executive regulations for legislation passed last year partially deregulating the energy sector, opening up the import of natural gas to the private sector and establishing a gas regulatory authority.

The deal will make use of infrastructure that is currently lying idle. Although the press release noted that transportation agreements have yet to be finalised, the gas is likely to be delivered by an existing pipeline owned by East Mediterranean Gas (EMG) which used to pipe Egyptian gas to Israel. Repeated attempts to sabotage the pipeline in the aftermath of the uprising that toppled Hosni Mubarak in 2011 led to a halt in exports in 2012. Should the EMG pipeline not work, a costlier possibility, according to Bloomberg, is the pipeline in Jordan operated by Jordanian Egyptian Fajr for Natural Gas Transmission and Supply.

With the pipeline, national grid and state-of-the-art liquefaction plants, one in Edku and a second in Damietta, Egypt has the infrastructure necessary to receive the gas and process it for re-export. And according to experts, the deal will create jobs in Egypt, royalties will be paid for the use of the national grid and taxes will be collected.

Allowing the private sector to import gas from abroad, especially from Eastern Mediterranean states, not only ensures Egypt’s natural gas needs are met but it furthers Egypt’s ambitions to become a regional natural gas hub, a source close to the deal told Al-Ahram Weekly.

All of which sounds very good, though it sidesteps the fact any transaction with Israel is unlikely to sit well with the public, especially at a time when there is no prospect in sight of a just peace agreement between Israel and the Palestinians.

A statement by Israeli Prime Minister Benjamin Netanyahu in which he described the deal as “historic” was at best provocative for Egyptian public opinion.

“This will put billions into the state treasury to benefit the education, health and social welfare of Israel’s citizens,” Netanyahu said.

While Egyptian proponents of the deal appear to assume the fact that private companies are doing the importing will distance the authorities from being tarred with participation in something that is potentially unpopular, the Israeli prime minister’s statements imply the deal was in fact an agreement between governments.

This was denied by Minister of Petroleum Tarek Al-Molla who stressed the deal was a private sector affair about which the government has yet to see any details. Speaking to various satellite TV programmes, Al-Molla said there was no objection to the deal in principle but it still needed to be approved by the government before the process could begin.

Financial consultant Tarek Allouba is confused by the Egyptian government’s official stance condemning Israeli settlements and calling for a two-state solution while it appears to be giving a green light to the private sector to go ahead with the deal. The government should use approval of the deal to positively influence the peace process, he argues. Although 40 years have passed since Egypt signed a peace treaty with Israel, Allouba noted, the larger public remains resistant to the idea of normalisation.

But another source who preferred to remain anonymous believes strengthening relations with Israel during these times of regional turmoil is not all that bad. “It is a bitter pill that we must swallow to neutralise them, especially with the war against terrorism in Sinai and the disputes over gas in the area east of the Mediterranean.” He acknowledged that Israel is definitely the biggest winner since it will sell the gas at the international price, a far cry from the low rates it was getting Egyptian gas in the past.

In the meantime, Al-Molla has stated publicly that if the agreement is to be given the go-ahead an outstanding arbitration award against Egypt in favour of Israel must be resolved. Some observers believe Cairo will only approve the deal if the arbitration ruling is waived.

The halt in Egyptian gas exports to Israel in 2012 resulted in an arbitration case against Egypt. In mid-2017 the International Chamber of Commerce’s International Court of Arbitration ruled the Egyptian General Petroleum Corporation and Egyptian National Gas Holding Company, two state-owned companies, must pay almost $2 billion in compensation to Israel Electric Corporation as well as damages to EMG following the breach of a contract to supply gas to downstream Israeli commercial users.

An Egyptian arbitration centre, the Cairo Regional Centre for International Commercial Arbitration, was also reported this week to have ruled that East Mediterranean Gas, the company that operated the pipeline delivering gas to Israel, should be awarded $1.033 billion plus interest.

That the Egyptian public was not informed about the deal was also criticised by Allouba.

“Failure to inform the public on issues of vital importance is a recurring problem with our government,” he said.

While acknowledging currently idle facilities will earn the government some income Allouba wonders what benefits will accrue to the average citizen. “We are facilitating the export of their gas,” says Allouba, adding that without this deal “they did not know what to do.” Plans to build an undersea natural gas pipeline between Israel and Turkey have failed to materialise due to political differences.

Noble Energy said in the press release the gas price formula used is linked to Brent oil prices. “The Leviathan contract represents expected total gross revenue approaching $7 billion at recent Brent prices, with Tamar potential revenues up to a similar amount, dependent on actual volumes sold,” the press release said.

Others question why Egypt should import gas at a time when the huge Zohr field off Egypt’s northern coast is expected to see the country attain self-sufficiency in natural gas by the end of 2018.  

Cairo’s plans to transform itself into a regional hub appear to be derailing Ankara’s attempts to present Turkey to the EU as a regional centre for the export of natural gas to Europe via the Russian gas pipeline which crosses Turkish territory, said the source close to the deal.

Though he concedes Egypt and other Eastern Mediterranean states are unlikely to replace Russia as Europe’s largest supplier of natural gas they could help to significantly reduce EU dependence on Russian gas while simultaneously undermining Turkey’s importance to Europe and boosting Cairo’s diplomatic weight.

This deal is not the first example of cooperation between the private sectors in Egypt and Israel. Under the Qualified Industrial Zones agreement, in place since 2004 and initially devised by the US, garments are jointly produced and exported to the US.

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