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Egypt Forced to Pay Israel $1.7 Billion Over Broken Gas Contract

Despite its ever-closer energy ties with Egypt, Israel intends to collect $1.76 billion awarded by an international arbitration court because Cairo suspended a gas supply contract three years ago.

The International Chamber of Commerce (ICC), in papers filed Sunday, said it was directing the Egyptian Natural Gas Holding Company and the Egyptian General Petroleum Corp. to pay the compensation to the state-owned Israel Electric Corp. (IEC) for “severe damage” to the Israeli utility.

Egypt and Israel had had a 20-year contract, beginning in 2008, under which the two Egyptian energy companies would provide gas to Israel via a pipeline that crossed the Sinai Peninsula. The flow stopped abruptly in 2012 because of several months of attacks on the conduit by militant groups in the area.

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“The company will collect the sums to which it is entitled according to the arbitration award,” the IEC said Sunday as soon as the ICC decision was announced. But Egypt said it would appeal and would suspend current negotiations on plans for it to import gas from huge Israeli gas fields in the Mediterranean Sea until the dispute could be resolved.

The IEC originally had demanded compensation totaling $4 billion, saying that the interruption of its source of gas left it no choice but to buy more expensive fuels to generate power, but it accepted the ruling of the ICC arbitration panel.

An interviewer on Israel’s Army Radio asked Energy Minister Yuval Steinitz on Wednesday whether Israel might decline the award in an effort to maintain his country’s close ties with its Arab neighbor. He replied that Israel should accept the money, but open negotiations on maintaining the two neighbors' energy relationship.

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“But I think that we will sit with the Egyptians, and there will be a dialogue, and we will think together how to move forward,” Steinitz said. “Exporting Israeli gas to regional countries like Egypt, Turkey, Greece, Jordan, the Palestinian Authority has a diplomatic value.”

Egypt is just as eager to buy Israeli gas as Israel is to sell it. An Egyptian gas-trading company, the Dolphinus Holding Co., has been in talks with Israeli energy officials to buy as much as 4 billion cubic meters of gas per year for 10 to 15 years from the recently discovered Leviathan gas field in the Mediterranean.

A tentative agreement on the Leviathan-Dolphinus deal was announced on Nov. 25, and in March the Egyptian company signed a deal to import gas from Tamar, another gas field off Israel’s Mediterranean coast. Cairo has said it remains interested in importing Israeli gas, even though the Italian energy giant ENI has discovered the huge Zohr gas field of Egypt’s Mediterranean coast in August.

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Such efforts could come to nothing, though, if Egypt stands by its insistence to suspend energy talks with Israel. That’s why Israeli Prime Minister Benjamin Netanyahu says he’ll make the effort to smooth any feathers ruffled by the ICC award and his government’s decision to accept it.

On Tuesday, Netanyahu told the Knesset, Israel’s parliament, that he will send a special envoy to Cairo, as Egypt has recommended, to work on a solution to the current impasse. “I believe that we will reach a solution due to the common interests of both sides,” he said. “This is a very large interest. I think that, ultimately, those interests dictate reality.”

By Andy Tully of Oilprice.com

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