How Egypt will gain from pri­vate gas deal with Is­rael

Arab News - - OPINION - ABdel­latif el-meNawy | Spe­cial to aRaB NewS

IT was dur­ing the evening of an au­tumn night in 2013, in a ho­tel in the Egyp­tian cap­i­tal Cairo, when I met Sherif Is­mail, the Egyp­tian Min­is­ter of Petroleum at the time and the cur­rent Prime Min­is­ter, only four months af­ter Egypt had top­pled the Mus­lim Brother­hood. The coun­try was ex­pe­ri­enc­ing a real en­ergy cri­sis and it was the re­spon­si­bil­ity of Is­mail to find a so­lu­tion.

We dis­cussed the pos­si­bil­ity of solv­ing a large part of the prob­lem through the re­verse use of the Egyp­tian gas pipe­line that had been es­tab­lished about eight years ear­lier and caused a lot of con­tro­versy, re­sult­ing in the pros­e­cu­tion of a large num­ber of of­fi­cials in the wake of Hosni Mubarak’s 2011 ouster, in­clud­ing for­mer Petroleum Min­is­ter Sameh Fahmi, who was charged with ex­port­ing gas to Is­rael at lower than mar­ket rates.

The other im­por­tant point in our conversation was how reach­ing such an agree­ment, in ad­di­tion to pro­vid­ing the en­ergy needed by Egypt, would be one of the most im­por­tant el­e­ments in solv­ing the ar­bi­tra­tion prob­lem that the coun­try was fac­ing. In light of the un­wise 2012 de­ci­sion to stop ex­port­ing gas to Is­rael fol­low­ing ter­ror­ist at­tacks on the pipe­line in Si­nai, Egypt was even­tu­ally given a bill of $1.7 bil­lion in ar­bi­tra­tion. The un­der­stand­ing was that find­ing a way to im­port gas from Is­rael could help solve this is­sue.

The con­straints for im­ple­ment­ing this idea at the time, ac­cord­ing to Is­mail, lay in the le­gal as­pects that did not pro­tect of­fi­cials if they took a de­ci­sion deemed un­sat­is­fac­tory at a later date. Then there were the trends of pub­lic opin­ion, while the third ob­sta­cle was se­nior ex­ec­u­tives, who would be afraid of adopt­ing the pro­ce­dures while they saw col­leagues go­ing to prison for ex­port­ing gas to Is­rael. Is­mail con­cluded laugh­ingly: “In this case, there would be a min­is­ter who was jailed for ex­port­ing gas to Is­rael, and I would be im­pris­oned for im­port­ing it.”

This po­si­tion ex­plains the prob­lem­atic na­ture of the cur­rent con­tro­versy in Egypt caused by the an­nounce­ment by a pri­vate com­pany that it had signed a $15 bil­lion agree­ment to im­port gas from Is­rael. This news caused a wave of ques­tions about the fea­si­bil­ity of such an agree­ment, es­pe­cially in the light of re­cent gov­ern­ment state­ments that Egypt would achieve self-suf­fi­ciency of nat­u­ral gas by the end of this year — af­ter the start of pro­duc­tion in the Zohr field, the largest ever gas find in the Mediter­ranean.

What made mat­ters worse was the state­ment of Is­raeli Prime Min­is­ter Ben­jamin Ne­tanyahu, which con­firmed that sign­ing the agree­ment was a “joy­ous day,” with­out men­tion­ing any facts about the deal.

There should be “points of or­der” to clar­ify the mat­ter, which has caused con­fu­sion in Egyp­tian so­ci­ety. The first is that Egypt is the only coun­try in the Eastern Mediter­ranean that has the in­fra­struc­ture for liq­ue­fy­ing nat­u­ral gas, with two of the world’s largest liq­ue­fac­tion plants: SEGAS and Egyp­tian LNG, which were es­tab­lished 15 years ago at a cost of $3.2 bil­lion but are now ly­ing idle.

The new agree­ment has been signed by the Is­raeli group Delek, which owns the Le­viathan and Ta­mar gas fields, and the Egyp­tian com­pany Dol­phi­nus Hold­ings, whereby the lat­ter pur­chases the equiv­a­lent of $15 bil­lion of Is­raeli gas over 10 years. This will be de­liv­ered to the liq­ue­fac­tion sta­tions in Dami­etta and Edco, and the Egyp­tian com­pany will then ex­port the liq­ue­fied Is­raeli gas to Europe.

Sev­eral points should be noted here. First, the Egyp­tian gov­ern­ment has not signed con­tracts with its Is­raeli coun­ter­part. Sec­ond, the gov­ern­ment will not im­port Is­raeli gas and will not pay a penny in the deal. More­over, the im­ported gas is not for Egyp­tian con­sump­tion but for ex­port to Europe. This at­tracted the in­ter­est of the in­ter­na­tional me­dia, as it con­firms Egypt has be­come a cen­ter for the mar­ket­ing and dis­tri­bu­tion of liq­ue­fied nat­u­ral gas (LNG) in the Eastern Mediter­ranean.

Egypt will cer­tainly be self-suf­fi­cient in gas this year and what will hap­pen with the Is­raeli gas will also hap­pen with Cypriot, Greek and Le­banese gas, as these coun­tries and oth­ers that have re­cently dis­cov­ered gas in their ter­ri­to­ries suf­fer from a scarcity of liq­ue­fac­tion plants. Con­se­quently, Egypt will be the main cen­ter for the ex­port of gas to Europe, which ends the dreams of Qatar and Tur­key in this re­gard. The Fi­nan­cial Times con­firmed this agree­ment will be of par­tic­u­lar in­ter­est to Europe given con­cerns over the de­cline in pro­duc­tion from the North Sea and its great de­pen­dence on Rus­sia.

Pres­i­dent Ab­del Fat­tah El-Sisi noted that Egypt seized this op­por­tu­nity from other coun­tries in the re­gion, in ref­er­ence to Tur­key.

An­other salient point is that the nat­u­ral gas reg­u­la­tion law passed last year gave pri­vate sec­tor com­pa­nies the right to im­port gas from abroad for use in their own projects, in re­turn for pay­ing the gas tran­sit fees on the Egyp­tian pipe­line net­work.

In ad­di­tion to the ex­pected profit from the deal, the im­port of nat­u­ral gas from both Is­rael and Cyprus will al­low Egypt to es­tab­lish new projects in the field of petro­chem­i­cals, which will bring great value to the nat­u­ral gas in­dus­try.

How­ever, the gains do not stop at this point, as Is­rael may waive the $1.7 bil­lion ar­bi­tra­tion fine im­posed on Egypt for the sus­pen­sion of its gas ex­ports, plus $300 mil­lion in ar­bi­tra­tion fees.

The video broad­cast by Ne­tanyahu, mean­while, had a purely po­lit­i­cal pur­pose as he is fac­ing cor­rup­tion charges and was try­ing to dis­tract pub­lic at­ten­tion.

It is now in­cum­bent on Egypt to con­sider the is­sues sur­round­ing this agree­ment and deal with it as a di­rect Egyp­tian in­ter­est that does not de­tract from the rights of any other party and, in essence, con­sti­tutes a purely non-po­lit­i­cal trade agree­ment.

Abdel­latif El-Menawy is a crit­i­cally ac­claimed mul­ti­me­dia jour­nal­ist, writer and colum­nist who has cov­ered war zones and con­flicts world­wide. Twit­ter: @ALMe­nawy

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