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Egypt Gas Puzzle: The Puppet and the Puppeteer

Source: Gulfoilandgas.com - Articles 6/22/2014, Location: Africa

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Our article published on April 2 about “Reversing the Flow” concluded that Egypt's gas export infrastructure represents an excellent opportunity to achieve energy security for Egypt and the region. “Reversing the Flow” also highlighted the need for redefining Egypt gas export role in the East-Med. This article focuses on one missing link “Israel” and the new role they want to play in the East-Med Energy Corridor.

Recent Gas discoveries in Israel are a game changer. Israel is fully aware that unlike other commodities, exporting natural gas is a high risk decision. To do it on their own, they need to build expensive infrastructure and to wait few years before getting the first gas shipment to consumers. But Israel have learned the lesson from Egypt disastrous gas decisions resulting in wasted investments and huge liabilities.

To play a risk free controlling role in the so called “East-Mediterranean Energy Corridor” Israelis chose a better strategy: On the one hand they are persistently rushing Cyprus to build Vassilikos LNG plant which will cost them around $12bn to diversify the Gas liquefaction options accessible to Israel. On the other hand, they are capitalizing on the existence of the Arish - Ashkelon pipeline for realizing Israel ambitious energy control plan in the region.

Why Arish - Ashkelon Pipeline is a Golden Opportunity for Israel Strategy?

Egypt’s gas export infrastructure includes the Arab Gas pipeline, Arish-Ashkelon pipeline and 2 LNG plants, one in Idku and the second in Damietta. Today, Israel is looking for ways to export their own gas without investing in liquefaction facilities. Spain was the largest buyer of LNG from Egypt and highly dependent on Egypt for the procurement of up to 20% of its LNG needs. Spain is also a major investor in Damietta LNG and owns 40% of the project shares. The interruption of Gas supply from Egypt was a bad news for Spain and a golden opportunity for Israel who is now looking for Egypt infrastructure as the most economic and quick answer for exporting Israeli gas.

The Arish - Ashkelon gas pipeline, owned by East Mediterranean Gas Company (EMG), is a 100 kilometers submarine gas line connecting the Arab Gas Pipeline with Israel to transport approximately 7.0 BCM per annum of Egyptian natural gas to Israel. In 2010, the pipeline was supplying approximately half of the natural gas consumed in Israel. Today, with the escalation of local demand and slow field development activities, Egypt has no gas to pump in the direction of Israel.

The key founders of EMG were Hussein Salem an Egyptian intelligence agent in the 1960's and Yosef Maiman a business Tycoon from Israel. In 28 Jun 2012, a Cairo court sentenced Salem to 15 years in prison for his role in EMG's gas contract with Israel. The sentence was overturned last year and a retrial is pending. According to Globes Israel business news, Israelis are helping Hussein Salem fight his extradition to Egypt from Spain where he now resides. It seems, that the main reason for doing so, is to use Salem hidden influential network inside Egypt to realize one goal: Reversing the flow to process Israeli gas in LNG plants in Egypt.

Both Spain and Israel are putting pressure on Egypt so that the Arish Ashkelon gas pipeline makes a strong comeback but this time as a "liability monster" to force pumping gas from Israel to Egypt. Yosef Maiman is suing Egypt for $8bn to compensate for the interruption of the gas export to Israel. In the meantime, Union Fenosa Gas (UFG) is suing Egypt for $6bn because of the interruption of Gas export from Damietta LNG to Spain. The partners in Israel's Tamar gas field led by the Houston based Noble Energy said on May 6 they had signed a letter of intent (LOI) with Union Fenosa to export up to 2.5 trillion cubic feet (tcf) of gas over 15 years to the Damietta LNG.

Reversing the Gas Flow

Why a Gas Pipeline from Cyprus to Damietta LNG is a Better Alternative?

Mr. El Baz in his article "Love Thy Enemy: The Untold Story of Huge Gas Reserves in the East Mediterranean" was asking whether Israel is the puppet or the puppeteer in the game? In my opinion, this will depend on the future reaction of the different players in the East-Med. To make everybody happy, one solution to the problem was suggested in our Egypt Gas Puzzle series: Cyprus could send natural gas from its Aphrodite field (Block 12) field by undersea pipeline to the Damietta LNG plant in Egypt: The proposed 180 km pipeline would require a relatively small investment in the range of 5% of the investment needed for building Vassilikos LNG plant.

Under this scenario, Spain will be able to resume LNG shipments from Egypt. In the meantime, Egypt will be able to satisfy the legal obligations of EMG gas export contract and redirect a portion of the Cypriot Gas to Israel through the Arish - Ashkelon gas pipeline since Israelis insist on suing Egypt because of the interruption of gas export to Israel! Egypt is currently fighting extremists who are blowing up the route of the Arab gas pipeline in Sinai. In the short term, this will definitely represent a risk factor and an additional burden for Egypt. However, pumping the Cypriot gas back to Israel will give Egypt the opportunity to fight the "Liability Monster" imposed by Israel.

This counter Egyptian strategy is critical to assist Cyprus in selling its gas in the short to medium term, to satisfy the needs of Egypt's Mediterranean Neighbours and to balance the supply/demand equation in the Mediterranean because the Egyptian people will no longer tolerate future suspicious deals leading to financial disasters and foreign control.

Dr. Maged Amin
Founder: Gulfoilandgas.com

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