Oil and gas officials to be sued for the new gas exports deal to Israel

Sherine Nasr (Al-Ahram Weekly), Thursday 16 Dec 2010

New agreements to export natural gas to Israel are thought to be as contentious as their predecessors

Sameh Fahmi
We have enough Gas, says minister of oil

The latest gas deal with Israel is in violation of a verdict delivered earlier this year by the Higher Administrative Court, which stipulates that Egyptian gas exports to Israel be halted, argue activists who oppose the sale.

The opponents' main argument is that the Egyptian economy should not be deprived of its limited natural gas resources.

They explain that there is a trade-off between exports and much-needed energy, which is required to support industrial development and household needs.

In its ruling, the court set three conditions for gas exports, according to which the local market needs take precedent, gas ought to be sold at international market prices and the deals must be limited to one year contracts, after which they can be reviewed.

“The latest agreement meets none of these conditions,” said Ibrahim Zahran, a member of the National Specialised Councils and the former chairman of the Khalda Petroleum Company.

The new contract to export Egyptian gas to Israel was announced on Monday.

With a contract value ranging 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 are set to start in the first quarter of 2011.

As in the past, news of the deal appeared first in the Israeli press, with representatives from the companies involved praising the deal, saying it would enhance efficiency and cut 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," cheered Oil Refineries' CEO Yashar Ben-Mordechai, who was quoted by Israeli Business News on Monday.

The only response to come from the Egyptian petroleum sector was from Mahmoud Abdel Latif, chairman of the Egyptian Gas Holding Company (EGAS), who said EGAS was not a part of any deal with Israel and that EMG, a private company, is free to supply its clients with any amount of gas.  

According to Zahran, this is the fourth time Egypt has agreed to sell gas to Israel. He added that the first time had been in 2004, while the other agreements had been concluded after 2008.

"Secrecy and lack of transparency about the terms of the deals are common factors in all these deals,” says Zahran, an active member of the No to the Gas Setback campaign.

“The whole matter has been shrouded in ambiguity and it is very difficult to determine the real terms of the agreements,” agreed Amr Hammouda, director of El-Fustat Centre for Developmental Studies and an energy expert.

“The sale of gas to Israel has a political as well as economic dimension,” said Hammouda.

Claims that the domestic market is inadequately supplied with natural gas appeared to be confirmed by many industrial companies who complain that they cannot expand their production due to energy shortages.

Meanwhile, the Ministry of Petroleum seems determined to put forward a brave face.

Minister of Petroleum Sameh Fahmi stressed that 63 new oil and gas discoveries were made during the 2009/2010 fiscal year. He also denied that Egyptian oil and gas reserves are declining.

“Our reserves during the past ten years rose from 11.8 to 18.4 billion barrels of oil and gas; 78.1 trillion cubic feet (tcf) of natural gas,” he said on Monday, addressing a seminar titled “Energizing Egypt's Future: The Outlook for Oil & Gas" that was held by Egypt's World Economic Forum (WEF).

Daily production, said Fahmi, has increased to 2 million equivalent barrels per day in the current fiscal year, up from 1.1 million barrels. The minister added that “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 minister's figures.

Egypt's total natural gas exports have reached 18 tcf, a third of which is now delivered to Israel at a marginal cost. "This sharply contradicts the ministry's claims that only a third of gas production is exported," says Fahmi.

But he asserts that the government has managed to reduce exports ratio to overall production.

"We have maneuvered to decrease the quantity exported to 29 per cent of total production to meet the growth in local market demand."

Fahmi also said that between April and June export was indeed brought down further to 26 per cent of overall production, in order to pump more of it into the domestic market. 

During his meeting with members of the World Economic Forum, the minister stressed that exporting gas was not a goal in itself but rather a means of securing foreign currency earnings, which are needed to meet growing imports of other petroleum products such as fuel oil and diesel.

Critics see gas exports as economically unsound. “To export gas at marginal prices and import other petroleum products at international prices to fill the gap is ridiculous,” said Zahran.

Egypt consumes 13 million tons of diesel per year, he points out, and two million tons of both fuel oil and gasoline. These are sold at $14, $8 and $15 per million British thermal units (Btu) on the international market.

In the meantime, Egypt makes up for the shortages in gas supplies by purchasing gas at an average price of $3.27 per million Btu from its foreign partners (the gas multinationals that produce gas in Egypt).

Although there are few clues as 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.

(Additional reporting by Ahmed Mousa).

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