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Jordan Scrambling to Replace Lost Egyptian Natural Gas Imports

By John Daly | Thu, 27 October 2011 12:35 | 0

The Arab Spring has claimed a vulnerable Arab nation as “collateral damage” – Jordan.

In the aftermath of Egypt’s uprising against President Hosni Mubarak, attacks began on Egypt's $500 million East Mediterranean Gas Company Ltd. pipeline, which exported Egyptian natural gas to Israel.

The East Mediterranean Gas Company Ltd. was established in 2000 and is jointly owned by Egyptian General Petroleum Corp., which owns 68.4 percent of the venture.

The pipeline sent natural gas from Egypt to Israel and beyond to Jordan and Syria via underwater pipelines from Al 'Arish to Ashkelon, with contracts starting in 2007, providing Israel’s Electric Corp. with 170 million cubic feet of gas per day.

The contracts allowed Israel to purchase up to 7 billion cubic meters of Egyptian gas annually, which made Israel one of Egypt's most important natural gas export markets, as Israel received about 40 percent of its gas from Egypt.

Following the overthrow of Mubarak in February the East Mediterranean Gas Company Ltd. pipeline was subjected to repeated attacks, closing completely on 25 July. A separate branch of Egypt’s East Mediterranean Gas Company Ltd. that connects with Jordan, Lebanon and Syria suffered a separate attack on 27 September, near the northern Egyptian Sinai city of El-Arish.

The good news is that shipments have resumed.

The bad news in Amman is that Egyptian natural gas costs more.

Leaving Jordan between an Arab Spring and a hard place, as it relies on East Mediterranean Gas Company Ltd. natural gas exports for over 80 per cent of its electricity generation needs.

The issue is critical for Amman, as energy-poor Jordan currently imports 98 per cent of its energy needs at a cost of 23 percent of the gross domestic product. The shutdown of the East Mediterranean Gas Company Ltd. natural gas pipeline left Amman scrambling for alternatives.

Enter Iraq.

Jordanian Ministry of Energy Secretary General Farouq Hariri said that his ministry’s officials have been in contact with Iraq to supply Jordan with natural gas, with a possible agreement in early 2012.

According to local media reports, Amman and Baghdad have already signed a memorandum of understanding regarding Jordanian imports of Iraqi natural gas. If the arrangement comes to fruition it would benefit both Jordan and Iraq, as would be one of Iraq’s the first regional natural gas deals.

While foreign interest in Iraqi energy reserves largely focus on the country’s vast oil reserves, Iraq contains 110 trillion cubic feet in known natural gas reserves, with an estimated additional 150 trillion cubic feet in potential untapped reserves.

Win-win situation, right?

Not exactly.

While Egypt and Jordan might be Muslim nations, Cairo’s price is going up. While Egyptian energy officials played coy in disclosing new pricing arrangements, analysts believe that future Jordanian imports of Egyptian natural gas will see prices “triple” from their current level of less than $2.

Well, analysts overstated their case. On 24 October Egyptian Petroleum Minister Abdullah Ghorab announced that Jordan’s new natural gas price would be slightly above $5 per 1,000 cubic feet "for the same quantities that we had agreed to before."

The disruption of Egyptian natural gas imports have forced Jordan’s power plants onto their diesel and heavy oil reserves at a cost of $4.2 million per day.

Still, change is in the air, and the portents are not good for Jordan’s energy tab, as it receives its natural gas after the pipeline supplies Israel. Egyptian Petroleum Minister Abdullah Ghorab recently said that Egypt will soon finish writing a new contract for natural gas exports to Israel, commenting, "The final draft related to amending the prices for exporting natural gas to Israel will be completed soon. It will see a big increase in the price. Whoever pays more will receive preference for our gas."
As for Amman digging deeper in its coffers for its new Egyptian energy bills, the new contract gives Egypt the right to reconsider the articles of the agreement every 30 months.

No wonder that Jordan is courting Iraq.

By. John C.K. Daly of Oilprice.com

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