A “Washington Post” report about the sale by Israeli company Merhav of its stake in Egyptian refinery Midor made considerable waves in the Israeli press. The report added that an Egyptian Ministry of Petroleum official said “it is more likely Egypt will follow alternative plans to build a pipeline from the northern Sinai northward through Jordan.” According to the newspaper, “Egyptian officials have refused to clarify whether they are still considering the project.”
The “Washington Post” is a respectable publication, and its information is probably accurate. The near-hysterical reaction in Israel did not include those involved in the project. Israel Electric Corporation (IEC) sources said that negotiations were continuing as usual, and that the company believed it would signs agreement with the two suppliers. IEC has confirmation from the Egyptian government concerning its intention to supply natural gas to Israel through EMG, in which Yossi Maiman’s Merhav, the Egyptian General Petroleum company, and Egyptian businessman Hussein Salem are partners. “In view of this confirmation, we’re not worried so far,” IEC sources say.
Merhav is also calm. The company totally denied the allegation that political pressure played any role in its decision to sell its stake in Midor last week, despite a clear-cut statement by Egyptian Minister of Economics and Trade Yousef Boutros-Ghali that he wanted the Israeli company to sell its stake in the refinery. The statement was made about a week before the deal was concluded. Even now, Merhav sources maintain that there have been no changes, and that the company is pursuing its discussions with IEC according to plan.
Political balloon
Statements concerning possible damage to the gas project with Egypt are not new, and they are causing considerable public relations damage to Merhav, a company not known for its affection for the press. A few months ago, there were reports that the Egyptian oil minister ordered the total cessation of negotiations with IEC, but at the same time EMG representatives were sitting in IEC offices and negotiating. It appears that no connection between grandiloquent statements and reality has been proven so far.
Most of the Israeli energy market sources with which we talked, including sources without direct interest in the natural gas project, agree that gas supply from Egypt is in no danger. “A political balloon,” was how one source called the story.
The same source added, “As long as Egypt has a clear and certain profit, it won’t hurt the project. We’re talking about a particularly poor country and this specific resource isn’t a commodity. You can’t bottle it without spending hundreds of billions of dollars. Israel is a good, assured client, and the Egyptians won’t rush into losing it.”
The history of Egyptian oil supplies to Israel provides an indication about relations with Egypt. In its peace treaty with Israel, Egypt pledged that “economic relations will include ordinary commercial oil sales by Egypt to Israel,” and that “Israel will be fully entitled to make offers to buy oil originating in Egypt that is not required for internal oil consumption in Egypt, and Egypt and its oil concessionaires will consider offers made by Israel on the same basis and terms applying to other bidders for the same oil.”
Despite the ups and down in Israeli-Egyptian relations, Egypt continues to supply Israel with required fuels on a regular basis. It was Israel that made changes.
According to Ministry of National Infrastructure figures, fuel imports from Egypt represented 12% of all fuel imports to Israel in the first half of 2000. In 1997 fuel imports from Egypt made up 24% of all fuel imports and in 1995 they represented 34%.
The gradual decline is attributed mainly to the commercial terms – prices and fuel types. Buying from Egypt was less worthwhile, there was less need for the fuels offered by Egypt, etc.
In 1998 Ariel Sharon, then Minister of National Infrastructures, said that Israel would all but cease regular fuel purchases from Egypt. Sharon considered such purchases as creating a problematic dependence for Israel. His perception now appears like foresight. Sector sources assess that the decline in Israeli oil imports from Egypt continued this year, and that they come to about half the amount imported in the corresponding period in 2000, that is, only a tiny fraction of Israel’s total crude oil imports.
Plenty for all
Natural gas is a totally different story. Oil can be transported in barrels, but natural gas is very difficult to transport in this way.
The Egyptians are vigorously promoting the construction of a pipeline to Jordan, which is due to be extended to Turkey via Syria and Lebanon. They are prolonging the pipeline by many kilometers to bypass Israeli territory. This is a wholly political consideration. However, sources in the Egyptian Embassy say that, as far as they know, there is no connection between the two projects, and that Egypt has enough natural gas to supply the Jordanians, Syrians, Turks and Israelis, with plenty left for Egyptian domestic consumption.
The Yam Thetis partnership that discovered natural gas off Israel’s shores ran a large-scale political and media campaign for promoting the consumption of Israeli-produced natural gas only. Public reaction was generally positive. Even Merhav, which imports gas from Egypt, came out in favor of using natural gas from both sources.
The bottom line is that so far Egypt has been barking, but Israel has been doing the biting. It’s amply clear that Israel will be very glad to use additional natural gas resources off its own shores, if such are discovered. The history of oil sales indicates that Egypt should be apprehensive over Israel’s inclination not to rely on it when it comes to infrastructure.
The major reason for the decision to use Egyptian gas as well was the wish to encourage competition and bring down electricity prices. It appears that Israeli politicians, especially those on the right, will be only too glad to be rid of what they see as the unnatural outgrowth of economic ties with Egypt in the current state of relations with our great neighbor.
Published by Israel's Business Arena on 5 June, 2001