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Egypt Looking to Re-Negotiate Israeli Natural Gas Deal

By Economywatch | Thu, 19 May 2011 12:31 | 0

Israeli Prime Minister Benjamin Netanyahu met with Qatari Prime Minister Sheikh Hamad bin Jassim bin Jabor al-Thani in London on May 8 to discuss Doha’s offer to sell liquefied natural gas to Israel. The rumored offer came as Egypt, Israel’s current natural gas supplier shows an intention to renegotiate the controversial natural gas deal with Israel. Egypt has been supplying Israel with energy at below-market rates, however a deal with Qatar could be Israel’s long term solution to reduce the country’s dependency on Egyptian energy.

Although Qatar is willing to supply Israel with LNG, Israel is concerned about its energy security amid Egyptian calls to renegotiate the terms of a natural gas deal between the two countries, as well as sporadic attacks on the Egyptian-Israeli natural gas pipeline that have caused two temporary disruptions in delivery since February.

Qatar’s offer has long-term potential to make Israel less dependent on Egyptian energy supplies. In the meantime, Israel will have to swallow paying higher prices to Cairo.

Since 2005, Egypt has supplied 40 percent of Israel’s natural gas through an underwater pipeline from the Egyptian city of El Arish on the northern Mediterranean coast to the Israeli port of Ashkelon.

The deal has long been unpopular with the Egyptian public due to the preferential terms under which it sold natural gas to Israel at below-market prices. Following the ouster of Egyptian President Hosni Mubarak, however, the interim government and Supreme Council of the Armed Forces are pushing for a renegotiation of the agreement.

Former Oil Minister Sameh Fahmy and five other former officials were detained April 21 for an investigation into the contract. Unconfirmed leaks from the Egyptian Interior Ministry in March indicated that Mubarak’s sons Gamal and Alaa, as well as the former president himself, personally benefited from the deal, which would not be unusual given the nature of the Mubarak regime and Gamal’s extensive ties to businessmen controlling all sectors of the Egyptian economy.

By pushing for a revision of the natural gas deal, the Egyptian military aims to both increase its revenue to help pay Egypt’s budget deficit and debt, which could make the Egyptian economy even more vulnerable while it is trying to recover from the ongoing political turmoil, and to legitimize itself in the eyes of the Egyptian public by distancing itself from the former regime. To this end, unnamed Egyptian officials told Egyptian newspaper Al-Masry Al-Youm on May 5 that negotiations with Israel would start by the end of May with the aim of doubling the current price level.

If all goes to plan, Israel could reduce its dependence on Egyptian natural gas by buying LNG from Qatar, which could be found at lower prices on the spot market. Egypt, for its part, would have a number of options for its reserves: It could still supply Jordan and Syria, two destinations of the Arab Gas Pipeline, with natural gas; it could export natural gas to other clients via LNG facilities; and under a deal signed in March 2006, the pipeline will eventually be extended through Syria to Turkey and Iraq, adding more potential markets. Jordan depends on Egyptian natural gas for 80 percent of its electricity production, so Egypt would likely have a destination for any excess production that had previously been purchased by Israel.

But Israel and Egypt are more likely to continue dealing with each other. The two nations will have to reach a renewed accommodation that could satisfy Egypt’s demands, at least until Israel develops viable natural gas alternatives.

Till then, Israel has no option but to negotiate a new price with Egypt, and Cairo’s newfound inclination to push for such a renegotiation is a sign of the cooler relations between the two states.

Source: Economywatch

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