“Egypt does not have $1.8 billion to pay Israel; if Israel wants the gas export contracts to be implemented, it must be willing to make some allowances,” said John Astrop, a senior source in the global gas and electricity market, after International Chamber of Commerce arbitrators ordered Egyptian gas companies to pay $1.76 billion compensation to Israel Electric Corporation (IEC) for the heavy damages it incurred after they stopped supplying gas.
In the months after Egyptian president Hosni Mubarak was overthrown, the country stopped the flow of natural gas to Israel following a string of attacks on the pipeline in the Sinai Peninsula and because it did not have sufficient reserves to answer the needs of the domestic market.
After the gas import deal collapsed, IEC was forced to procure more expensive fuels to generate electricity. IEC and EMG the owners of the pipeline sued the national oil and gas companies EGAS and EGPC for billions of dollars.
According to reports in the foreign press, the ruling ordered the Egyptian companies to also compensate EMG for $288 million.
“This is a very large sum of money for Egypt to pay, but it is a paltry figure when you compare it to the revenues Israel expects from exporting the gas from Tamar and Leviathan to Egypt,” claimed Astrop, “Which is why Israel cannot demand this sum immediately, unless it wants to wait ten years before Leviathan is developed.”
Astrop said Israel should offer Egypt a 15-20 year payment plan for the compensation. “The best way to do this would be to offer the Egyptian companies to pay a higher price for the gas they buy from Israel. This way, Egypt can accept the arbitrators’ order and not reinforce its image abroad as a country that does not respect agreements, while on the other hand Israel receives the money and is seen as a country that is willing to be flexible. It’s a win-win for both sides.”
“Despite Egypt’s announcement, there is still a strong indication that it will move forward with gas imports from Israel,” said Sir Michael Leigh, a senior fellow at the German Marshall Fund of the United States. He said the gas talks will resume the moment a solution is found for the legal dispute. He further added that the increasing demand for gas in Egypt justifies the import of Israeli gas even after the domestic Zohr discovery.
“The gas discovered in the Egyptian reservoir will be used for the local market, while the Israeli gas will be used for export from one of the country’s two liquefaction facilities,” he explained.
“Israel must not export the gas”
Former Shell president John Hofmeister disagrees with Astrop and Leigh. “Egypt’s announcement only reinforces the argument that Israel should not export the gas.” The export contracts to Egypt may benefit Israel on the diplomatic front, but Hofmeister said “they can also do the opposite.”
He argued the export deals have a duration of 15-20 years and Israel cannot actually guarantee to supply its neighboring countries for that long. “What if there is a war between Israel and Egypt? Will Israel still supply gas or will it break the agreement? What happens if there is a separate arbitration ruling and Egypt decides to stop importing gas? In these cases, the opposite of what Israel wants ends up occurring.”
Hofmeister, who has previously made such claims in interviews with “Globes”, said Israel should use the gas for its internal consumption and to assure its energy security. “I am not against exports, but long before that Israel should take to convert anything it can to gas whether it is transportation or manufacturing, power stations or homes. Energy is security, and security matters much more than money. Israel must correctly exploit the asset it discovered.”
A senior attorney in the global energy industry, who previously consulted both the Israeli and Egyptian governments, agrees with Hofmeister. “Instead of finding creative ways to export gas to Egypt, Israel should find conventional ways to increase gas consumption in its domestic market.” He claimed the likelihood of exporting gas to Egypt was low even before the arbitrators’ ruling and was even lower now.
“Whoever believes it will be possible to export gas to Egypt, at least in the next 7-8 years, clearly does not understand the global gas market,” he said, adding: “The arbitrators’ ruling was the worst thing that could have happened to Netanyahu on the way to approving the gas framework.”
He said Egypt’s decision to halt talks with Israel pulls the rug out from underneath the justification given to the government bypassing the antitrust authority that it was necessary for geopolitical, diplomatic reasons. His advice: prepare for an international lawsuit from Noble Energy. “The approval and implementation of the gas framework will be delayed, and Noble will not accept that.”
Published by Globes [online], Israel business news - www.globes-online.com - on December 10, 2015
© Copyright of Globes Publisher Itonut (1983) Ltd. 2015