Egypt courts controversy by importing Israeli gas

Questions have been raised as to whether a deal to import expensive Israeli gas is in Egypt's interest.

4 min read

05 November, 2014

Tamar is one of Israel's offshore gas fields [Getty]

Officials and analysts in Egypt's energy sector this week warned against importing natural gas from Israel, arguing such a move would harm the Egyptian economy and threaten Egypt's national security.

The warnings come a few days after a coalition of investors and private sector companies reportedly began negotiating to import natural gas from Israel's offshore Tamar reservoir.

Several Egyptian media personalities have been championing the idea of importing natural gas from Israel.

Gamal Zahran, an Egyptian oil analyst, said there were serious questions about the high price of the deal.

"Israel's natural gas costs at least $18 [per million British thermal units], while gas from Algeria costs $13," he told al-Araby al-Jadeed.

The BTU is a measure of the energy contained in gas, rather than its volume or weight.

The high price of Israeli gas raises further questions about the price the private sector will re-sell the gas in local markets.

"Some officials from the oil sector have interests in the importation of natural gas. They receive commissions, exactly like they did when Egypt exported natural gas to Israel," said Zahran.

It is no longer unthinkable for the president and the government to work directly with Israel.
- Sherif Ismail, petroleum minister

Zahran warned that the price was likely to harm the Egyptian economy. Cairo is obliged to provide factories and industries with gas at a price agreed in previously signed contracts.

Even after the Egyptian cabinet's decision to increase energy prices for factories three months ago, the gas price for industry was set at between $4.5 and $8 per million BTUs. Analysts are concerned about the subsidy necessary to fill the gap.

No longer unthinkable

Directly addressing political concerns, minister of petroleum Sherif Ismail said in late October that "it is no longer unthinkable for the president and the government to work directly with Israel".

However, Reda Moharram, professor of petroleum and energy studies in al-Azhar University, disagrees.

The import of natural gas from Israel is a threat to Egypt's national security, he said.

The gas fields from which Egypt intends to import are located in Mediterranean waters between Israel and Cyprus.

Since these fields are the subject of regional disputes between Turkey, Syria, Lebanon, Israel and Egypt, a move to import gas from Israel will lead to hostility with neighbouring countries, Moharram argued.

Egypt is the rightful owner of many of the fields Israel and Cyprus are exploiting, said Moharram, and so Cairo should go to the International Court of Justice to stake its claim.

"Egypt does not need those suspicious deals," he concluded.

Algerian alternative

The first shipment of natural gas from Algeria is expected to arrive by the end of November, according to an agreement between the countries. The deal allows Egypt to import natural gas for five years for $13 per million BTUs - $5 less per million BTUs than Israeli gas.

Tamer Abu Bakr, head of the Petroleum and Mining Chamber in the Egyptian Federation of Industries, told al-Araby the debt incurred by Israel's exploitation of gas fields within Egypt's territorial waters should be paid off before Israel charges Egypt for gas.

He said Egypt was entitled to 50 percent of gas reserves in fields Israel exploits beneath Egyptian territorial waters. The Leviathan field, deeper in the Mediterranean, is thought to hold nearly 16 trillion cubic feet in reserves.

However, the plan has support in certain business circles in Egypt.

Alaa Arafa, who is leading a campaign to get the deal done, said the import of gas from Israel "served the interests of the Egyptian economy".

Importing natural gas from Israel threatens Egypt's national security.

The Israeli business newspaper Calcalist reported in late October that the letter of intent signed by the Tamar reservoir group and Egypt's Dolphinus Holdings Limited stipulates the transfer of natural gas through pipelines belonging to the East Mediterranean Gas company, a group co-owned by Egyptian business tycoon Hussein Salem who fled Egypt to Spain in February 2011.

Salem is accused of involvement in several cases of profiteering and misuse of public funds.

According to Calcalist, the letter of intent specifies the import of 2.5 billion BTUs every day for two years, and that the pumping of gas will depend on the production by the Tamar reservoir.

The company running the reservoir pledged to export a total of no fewer than five billion cubic metres in three years, all part of a deal worth $500 billion per year.

Ousted President Hosni Mubarak, ministers and businessmen associated with his regime were prosecuted after accusations they sold cut-price Egyptian natural gas to Israel, wasting public money.

Egypt stopped exporting gas to Israel after several bombings of its main gas export pipeline in north Sinai - attacks which increased after the February 2011 revolution.

The country also saw a sharp plunge in production after international companies halted investment in exploration after unpaid bills racked up. Egypt owed some $4.9 billion in late September 2014, according to statements by the Egyptian Ministry of Petroleum.

This is an edited translation from our Arabic edition.