There has been a lot of fog surrounding the news announced by Israeli Nobel Energy and its partner the Delek Group on 19 October regarding ongoing negotiations between them and a group of Egyptian businessmen represented by Dolphinus Holdings to export gas from the Tamar natural gas field to the Egyptian market. Dolphinus Holdings is said to be a consortium of large private-sector Egyptian gas consumers and distributors led by businessman Alaa Arafa. Reports have said that the Israeli group will be supplying 2.5 billion cubic metres (bcm) of gas over seven years to the Egyptian private-sector consortium. There are many questions surrounding this announcement. It has been called an agreement, a letter of intent and a memorandum of understanding. Are the amounts in question 2.5 bcm or five bcm, and is the agreement for three years or seven? There has also been no specific mention of the price, the mode of payment, or the guarantees of the seller. The partners in Tamar have said that the gas will be transferred via the East Mediterranean Gas (EMG) pipeline, which was previously used to export Egyptian gas to Israel from 2005 to 2012. This entails approvals by various government authorities in Egypt and Israel. The Tamar reserves are estimated at 282 bcm, and production began in 2013. It is likely that what is being negotiated is not a letter of intent or a memorandum of understanding, but instead is an actual agreement, especially given that the partners in Tamar have presented the Israeli Stock Exchange with a summary of the project. In the meantime, an Egyptian petroleum official told the US business newspaper The Wall Street Journal recently that the government would give its approval of the deal if some of the gas was fed to the domestic market and was reasonably priced, which means that there is no objection to the deal from the authorities. There are many sides to this agreement, and each party has its own reasons to push for this deal. After the 25 January Revolution in Egypt the truth came out about the lies told by the former Mubarak regime about Egypt's gas reserves. It had boasted that the reserves stood at 77 bcm without making it clear how much had been proven, how much was probable, and how much was possible reserves. When planning, only proven reserves can be depended on, and these are estimated at 27 bcm. Therefore, it was corrupt to conclude long-term export deals on the Mubarak regime's part, whether to Israel, Jordan or Spain, without having sufficient proven reserves. It also became clear that a huge debt of $6 billion was owed to the foreign partners, debt that has not yet been settled and has resulted in these partners stopping investment in the development of new fields or new areas, something which has significantly affected production. Accordingly, the Ministry of Petroleum has stopped meeting its obligations to various industries such as fertilisers and cement, and it has stopped delivering gas to Israel, Spain and Jordan and to the gas liquefaction plants run by British Gas and another liquefaction plant run by the Spanish company Union Fenosa. All this has led to the government officially announcing in December 2012 that Egypt was no longer a gas exporter, but rather an importer of gas from abroad. This was made official through a cabinet decision issued by the minister of petroleum and published in the Official Gazette on 17 December, 2012. The decision allows the country to import natural gas or liquefied gas from the international market directly or through contracting other companies. The decision also stipulates giving the necessary permits to companies which import for the local market and drafting the necessary regulations in cooperation with the Egyptian General Petroleum Corporation. It also allows for the transportation of imported gas through the national gas grid. The agreement is part of a larger plan to sell Israeli gas to Egypt and to various parties in the country. So while Dolphinus Holdings is the buyer from Tamar, there are two more agreements on the way, namely for Tamar to provide 4.5 bcm annually for 15 years to the Union Fenosa liquefaction plant in Damietta and for it to provide seven billion bcm for 15 years to the British Gas liquefaction plant in Edko where the gas will be supplied from the nearby Leviathan field which should start production in 2017 and is estimated to hold reserves of 621 bcm. Minister of Petroleum Sherif Ismail told the press last July that the ministry did not have anything against British Gas importing gas from Israel for its plant in Edko, which means that the government does not veto the importation of gas from Israel and that it is no doubt aware of the negotiations and where they are heading. There are various reasons that make it understandable for the government to approve such a deal. First, there is the huge burden of the fuel subsidies in Egypt and the large debt owed to foreign partners. Second, there is the arbitration case with Union Fenosa, which is asking for some $3 billion in compensation as a result of the failure of the ministry of petroleum to provide it with gas, and the arbitration case with EMG, which is demanding $8 billion due to the halt in the provision of Egyptian gas to the pipelines. Moreover, low gas production is affecting the provision of gas to factories producing cement and fertilisers. To make the most of the situation the government has requested that Union Fenosa and EMG withdraw their arbitration cases and that they provide gas at a cheaper price to the local market. It will also be collecting fees for the utilisation of the national grid to distribute the gas. Like Egypt, Israel has its own motives to push for the deal. For starters, the conclusion of the deal would signify a qualitative shift of great importance in the economic and political relationship between Egypt and Israel. The deal would also guarantee long-term clients for Tamar exports. The proximity and the presence of the liquefaction plants are two other factors: if Israel were to establish its own liquefaction plants, it would need huge investment and the plants would not be operative for two years. For Israel, Egypt is the best and quickest option as far as exports are concerned because a pipeline already exists which guarantees quick returns. Extending a pipeline to Turkey has been ruled out due to the current political situation and the unclear role played by Turkey in the region. Extending a pipeline to Cyprus was also considered, but was then also ruled out because the Cypriots have been freezing investments in their gasification plants until the Aphrodite oil field is developed. Exports via Jordan were also considered, but Israeli strategists have decided it is an opportune time to pump investments into the Jordanian oil sector instead. Another party which supports the sale is the European Union, because the gas that would be liquefied in the Edko and Damietta plants would head to Europe and therefore would put the EU's mind at ease regarding any shortages in supply of Russian gas on the back of the crisis with Ukraine. But the agreement will not go down easily. There is opposition in Israel to the expansion of exports of gas because this could be wanted for local development, especially since the partners in Tamar have already signed export agreements with Jordan and the Palestinian Authority even before Egypt. The pricing of the gas is also not clear, though there is speculation that it could cost $18 per BTU, which is expensive compared to gas exported by Algeria, Russia or Qatar. There are reservations on the legitimacy of Israel's ownership of the Leviathan field, since it is within Egyptian maritime borders though these borders have never been officially drawn. There will be Egyptian opposition to the deal, especially given that Israel was the biggest benefactor of Egyptian gas exports in the past, receiving them at a cheap price without even a readjustment clause. Israel benefitted from cheap prices, and the Egyptian public now believes that the country should be compensated in current circumstances. The country's opposition will also lament the lack of transparency and the fact that people have been left out of the decision-making process in petroleum-related decisions as though these were a military secret. The report by the Egyptian Initiative for Personal Rights, an NGO, on the corrupt gas deals with Israel has shown that some US$200 billion were lost from Egyptian coffers as a result, in addition to the commissions and waste of gas that resulted from the deals being done on the direct orders of one of Mubarak's men. Given all this, it is opportune to ask whether there has been any improvement as far as transparency is concerned. Has the country's petroleum sector been purged of the corrupt officials who were part of the former deals? We are up against the same problems of secrecy and official ambiguity. The writer is an energy analyst.
