New agreements to export natural gas to Israel have proved as contentious as their predecessors, writes Sherine Nasr
The "No to the Gas Setback" group is preparing to file a lawsuit against senior government officials following the latest agreements to sell gas to Israel. Earlier this week, Israeli companies signed long- term contracts with the Egyptian supplier East Mediterranean Gas Company (EMG). Under the 20- year agreements, 1.4 billion cubic metres (bcm) of natural gas will be exported annually with a possibility to increase the volume of yearly exports to 2.9 bcm.
According to AFP, the value of the contracts ranges between $5 and $10 billion. The gas will supply a number of private power plants in Israel including Israeli Chemicals Ltd's wholly owned subsidiary Dead Sea Works, Oil Refineries Ltd and OPC Rotem Ltd. Deliveries will start during the first quarter of 2011.
As in the past, news of the deals appeared first in the Israeli press, with representatives from the companies involved praising the deal as enhancing efficiency and cutting production costs. Egyptian officials remained resolutely tight-lipped.
"This contract and completion of the switch to natural gas as Oil Refineries' primary source of energy will position the company as one of the leading petrochemical companies in the Mediterranean basin. This is a strategic step that meets immediate needs for the rapid transition to natural gas use," Oil Refineries' CEO Yashar Ben-Mordechai was quoted as saying by Israeli Business News on Monday.
The only response on the part of the petroleum sector in Egypt came from Mahmoud Latif, chairman of the Egyptian Gas Holding Company (EGAS), quoted by a number of news agencies as saying EGAS was not a part of any deal with Israel and that EMG was free to supply its clients with any amount of gas.
According to Ibrahim Zahran, a member of the National Specialised Councils and former chairman of Khalda Petroleum Company, this is the fourth time Egypt has agreed to sell gas to Israel.
"The first was in 2004. The other agreements were concluded after 2008. Secrecy and lack of transparency about the terms of the deals are common factors of all these deals," says Zahran, an active member of the No to the Gas Setback campaign.
The latest purchase agreements are in violation of a verdict earlier this year by the Higher Administrative Court that was issued early this year and stipulated to stop Egyptian gas exports to Israel.
The latest gas purchase agreements contradicts the ruling passed earlier this year by the Higher Administrative Court that, says Zahran, set three pre- conditions for the export of gas: that the local market's needs are take precedent; that gas be sold at international market prices and that deals be limited to one year, after which they can be reviewed.
"The latest agreements," points out Zahran, "meet none of these conditions."
"The sale of gas to Israel has a political as well as economic dimension," says Amr Kamal Hammouda, director of Al-Fustat Centre for Developmental Studies and an energy expert. "Because the whole matter has been shrouded in ambiguity it is very difficult to determine the real terms of the agreements."
Hammouda does not dismiss the possibility that EMG will seek the contracted amount of gas from its foreign partner, or a neighbouring country such as Qatar.
Claims that the domestic market is inadequately supplied with natural gas appeared to be confirmed as electricity outages persisted throughout last summer. At the time the minister of electricity blamed the power cuts on inadequate gas deliveries.
Meanwhile, the Ministry of Petroleum has seemed determined to put forward a brave face. Addressing the seminar "Energising Egypt's Future: The Outlook for Oil and Gas, held by Egypt's World Economic Forum (WEF) on Monday, Sameh Fahmi, the minister of petroleum, underlined that 63 new oil and gas discoveries were made during the 2009/2010 fiscal year.
Fahmi denied that Egyptian oil and gas reserves are declining.
"Our reserves during the past 10 years rose from 11.8 to 18.4 billion barrels of oil and gas; 78.1 trillion cubic feet [tcf] of natural gas."
Daily production, said Fahmi, had increased to two million equivalent barrels per day in the current fiscal year, up from 1.1 million barrels. "Since we began to export natural gas in 2000 our production has increased by 275 per cent."
Fahmi did agree that the sector faces enormous challenges. "These have to do with declining gas prices compared to crude oil, fluctuating exchange rates and the high cost of drilling in the deepwater of the Mediterranean Sea."
Zahran, who has been in the oil and gas industry for decades, questions the figures announced by the minister.
"The 78 tcf is wishful thinking. It is an exaggerated estimate. The figure may represent Egypt's strategic reserves but proven natural gas reserves don't exceed 27 tcf. And this is the figure that counts."
Zahran argues that Egypt's oil production dropped from 950,000 barrels per day in the late 1990s to 530,000 barrels in 2010. Further, most gas production comes from fields that were developed during the late 1990s.
"We would like to hear about output from fields that have been developed since 2005. This is what will really count," he says.
Egypt's total natural gas exports have reached 18 tcf, a third of which is now delivered to Israel at a marginal price. This sharply contradicts ministry claims only a third of gas production is exported.
"We have manoeuvred to decrease the quantity exported to 29 per cent of total production to meet the growth in local market demand. During the period from April to June we brought it down further, to 26 per cent of overall production, in order to pump more in the domestic market," says Fahmi.
During his meeting with members of the WEF, the minister underlined that exporting gas was not a goal in itself but a means of securing the foreign currency earnings needed to meet growing imports of other petroleum products such as fuel oil and gas oil.
"To export gas at marginal prices and import other petroleum products at international prices to fill the gap is ridiculous," says Zahran. Egypt consumes 13 million tonnes of gas oil per year, he points out, and two million tonnes each of fuel oil and gasoline. These are sold at $14, $8 and $15 per million British thermal unit (Btu) in the international market. In the meantime, Egypt makes up for the shortage in gas supplies by purchasing gas from the foreign partner at an average price of $3.27 per million Btu.
"The transportation sector alone consumes almost 10 million tones of gas oil every year. Petroleum subsidies can be massively reduced if we switch to natural gas."
Although there are few clues to how much Egyptian gas will actually be sold to Israel under the new agreements officials from the Israeli Chamber of Commerce have been quoted as saying that any change in the price of imported gas from Egypt ($1.25 per Btu) will be rejected.
"We are seeking to sue senior officials at the Ministry of Petroleum. Unfortunately, the prime minister and the minister of petroleum can't be sued because of their political immunity," says Zahran.
© Al Ahram Weekly 2010
