Exporting gas to Israel before and after the Egyptian Revolution

In recent years, Egypt has succeeded to increase its natural gas proven reserves to reach 77.3 trillion cubic feet while reserves of crude oil and condensates still around 4.4 billion barrels. Egypt has appeared as a promising natural gas producer in the previous decade; as it has developed gas reserves rapidly, mostly from offshore fields in the Mediterranean Sea, and its was able to export its first LNG shipment in early 2005 and then strengthened its sales abroad through the Arab Gas Pipeline .

Exports and Local Consumption

With high population growth rate of about 1.4 million people in recent years, and with the continuing shift from oil to natural gas that has been delivered to major provinces and dozens of cities in addition to the growing activity of converting cars to be fueled with natural gas, the domestic demand is expected to grow by more than 8% annually.

As a result, the additional production may be finally directed from export to be used in houses, factories and power stations in Egypt. Therefore, any new deals to export gas have been frozen since two years in order to protect the gas supply for the domestic market. The conservative prospects regarding gas exports are not likely to improve, especially with the governmental keenness to give priority to local needs, especially for the electricity sector with its growing demand rate of 11.5% annually, considering the running of new power stations to increase power generation capacity by about 3 times by 2027.

Exporting Gas to Israel

Egypt exports gas through pipelines to Jordan and Israel; it also exports liquefied natural gas to other countries by LPG tankers. Egypt exports gas to Israel through the consortium of East Mediterranean Gas owned by Egyptian businessman Hussein Salem together with the Egyptian Company for Natural Gas and American, Thailand and Israeli companies. Claims from the Egyptian street against the consortium which provides 45 percent of the Israeli Electricity Facility needs of natural gas mount as it sells gas to Israel at lower prices compared to the market price.

The facts regarding exporting Egyptian gas to Israel began to appear on the surface for all to see. The Administrative Court had earlier issued a piercing verdict obliging the government to reconsider the contracts with the Israeli side.

Experts say that the Egyptian natural gas was being sold to Israel at prices far below than world prices. After adjusting prices, the two sides agreed on a price ranging between 4.0, 4.5 dollars per million BTU; a price which is still less than the equivalent global price of gas which ranges between 5-9 dollars per million units. This means that the price differentials between what is purchased by Israel and the global prices continue to exist. Of course negotiations with Israel to modify the current prices will not be easy, especially after years of selling gas to them at discounted prices less than a dollar and half for million units without a reasonable cause. The complete cessation of exporting gas to Israel just needs a sovereign decision which no one can predict its outcomes.

In fact, the issue of exporting gas to Israel is deeply divided between two points of view; the first calls for resuming the export of gas but at a good price for the benefit of the Egyptians. On the contrary, the second point of view calls for stopping gas export utterly to Israel, either at a low or a high price, especially that the local market suffers from recurrent crises due to lack of gas tubes.

Whatever the direction to which the public demands will go towards exporting gas to Israel, whether to stop it utterly or continuing to export with the correct gas prices to cope with the global prices, and although every view has its convictions, but modifying the prices of gas exports to Israel and applying a mechanism on the prices to ensure a positive review on regular time intervals to cope with the global prices is a good procedure within the current circumstances.

L.E. 82 billion to support petroleum products

The Ministry of Petroleum estimates the total bill of supporting petroleum products (gas tubes, gasoline and solar) by about L.E. 82 billion ($13.8 billion) spent to support these products during the current fiscal year ending in the next 30th of June 2011(the U.S. dollar is equal to L.E. 5.93) with an increase of L.E. 9 billion when compared to the decided support in the state budget of only L.E.73 billion. The governmental subsidies that go mostly to the energy sector form more than a quarter of the total spending in the budget of the fiscal year 2010-2011. The new minister confirms that the government in the current stage is not considering the rise of the petroleum products prices; it is necessary to change the support course to ensure its delivery to the citizens without being redirected to other uses and mediators.

In the present circumstances, there is no justification for granting Israel preferential advantages in prices, especially that Egypt is incurred in a support of 82 billion pounds for petroleum materials, including LPG tubes, and a part of this support was directed to providing Israel with natural gas at discounted prices. It is not fair that the Egyptian consumer pays increases in the LPG tubes’ prices to reduce the size of support incurred by the budget due to an error in exporting gas to Israel at discounted prices.

Gas Pipeline to Israel out of order

As for the natural gas pipeline directed from Egypt to Israel, which was recently blown up in El Arish, the minister said that repair works are still ongoing in order to resume its activities, especially with regard to long-term reforms.

Pumping gas to Israel two months ago has stopped in the special pipeline, passing in the Sinai Peninsula after the explosion of another close pipeline, thus causing large damages. Consequently, the Egyptian authorities stopped pumping gas in both pipelines. In the light of the prevailing political conditions after the revolution of 25th January, the Egyptian government refrained from pumping gas until the situation is clear. Because the Egyptian gas is almost the only source through which Israel gets its gas needs, it is currently negotiating with the Russian and Azerbaijani companies to obtain huge gas quantities through Turkey.

It is worth mentioning that El Arish – Ashkelan pipeline was providing Israel with half of its natural gas needs, and is run by the «East of the Mediterranean Gas Company», which involves the General Egyptian Corporation for Oil, Mirhav Israeli company, and the Israeli – American Company. The pipeline has been activated in 2008 to provide the Israeli Electricity Company with about 1.7 billion cubic meters of gas annually for 20 years. In late 2009, a new contract was signed to provide power companies and Israeli industrial installations with about 2 billion cubic meters annually for 20 years.

Directions of Eng. “Abdullah Ghorab”

The Egyptian Minister of Petroleum “Abdullah Ghorab” has described the prices of exporting the Egyptian gas to Israel as provocative for the Egyptian people and workers in the petroleum sector. He clarified that the decision of exporting gas to Israel was a sovereign decision and that the role of the Ministry was limited to just implementation. He added that all exporting gas agreements, including the agreement signed with Israel, are currently being negotiated to adjust their prices in order to achieve the best return to Egypt, and that the new exporting prices will be declared after the completion of negotiations, and that exporting will only be carried out under the best available price, especially that the media campaigns and the mass rejection of exporting gas have offered the Egyptian negotiator a strong support to get the best benefits.

The Egyptian minister Engineer Abd Allah Ghorab affirmed that the majority of the Egyptian people currently became interested in oil and its exporting and this is a good and worrying matter at the same time; the masses must understand that the ministry officials are deeply thinking in what the masses are considering, and that decision-makers do not now what must be hidden in this regard, but they just need more confidence and a time limit to meet the citizens needs.

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