The gas solution

As countries around the region tumble over each other to announce their gas development plans, Jasper Thornton checks out Egypt's latest move
Natural gas may seem something better left to pale chemists and bloodless industrialists -- a drab commodity good only for heating our homes. It isn't. Fugitive, invisible, potent -- natural gas roils through a tale of regional politics that boasts all the cast of high drama -- wary allies, treacherous rivals and mavericks in thrall to the unpredictable.
This past week, energy moves have been played out all around the region. On Tuesday, Iran inaugurated a pipeline that will send gas to Turkey for 25 years. Qatar leaked plans to slam its gas production into top gear. Syria declared it would develop gas fields in the Palmyra region. And Egypt signed a deal with French company Gaz de France to provide 10 per cent of France's gas needs for the next 20 years (see box).
The advantages to Egypt are obvious: foreign currency, foreign investment, jobs. But Egypt's deal is only the latest play in a grand strategy that has twisted through the labyrinth of regional politics and economy for over 20 years.
The tale begins in 1980, when an Israeli scientist, Gideon Fishelson, wrote a paper at Tel Aviv University suggesting Israel buy gas from Egypt. This apparently dry treatise raised tremendous excitement at the time, recalls Amr Kamal Hammouda, then energy correspondent for Al-Ahram Al-Arabi and now head of strategy think-tank Al-Fustat, but given political difficulties nothing came of it.
The issue hibernated until 1993 when Israel's foreign minister, Shimon Peres, flushed with his success in the Oslo peace process, flew to Cairo and asked Egypt to build a gas pipeline (stretching from Port Said to Beersheba), and an oil refinery, as a reward for his peacemaking. The refinery (MIDOR) was built; the pipeline (MIDTAP) is still unfinished. Analysts say Egypt had decided it inappropriate to announce a big gas deal with Israel at the time, though it pressed ahead with an oil deal.
While Egypt mulled over the ethics of gas sales, a player from an unexpected quarter appeared. In October 1995, Qatar strode forward and spread its wares at Israel's feet. Qatar has estimated gas reserves of 250 trillion cubic feet: 15 times what the US uses each year. To much fanfare, Israel's then Infrastructure Minister, Ariel Sharon, signed a letter of intent to buy Qatar's gas. Lurking behind the politicians was the influence of the deal's corporate broker: US energy company Enron.
Nevertheless, says Hammouda, Qatar's bucking of the Arab consensus has not yet borne fruit: depressed gas prices and diplomatic pressure have so far foiled the emirate's bid to make capital out of the qualms of its fellow Arab states.
These developments still left Egypt with a question: what to do with its own proven reserves of 53 trillion cubic feet of gas? In 1996, an Italian company took up the baton. At the MENA (Middle East North Africa)) conference of that year, Italy's ENI suggested a plan later dubbed "the peace pipeline." Guglielmo Moscato, dapper CEO of ENI, unveiled a visionary picture to a delighted audience: a majestic regional grid linking Egypt, Libya, Algeria and Palestine, whose gas would be piped up to consumers Israel and Turkey, and from there shipped to the European Union. Excitement ran high, and the European Investment Bank prepared a loan.
But before progress could be made, the Intifada broke out. Since then, the regional gas grid has seemed more of a pipe- dream than a pipe of peace. Egypt has continued, though, to develop the Arab side of the bargain, and intends to pipe gas to Aqaba and sell it to Jordan. Meanwhile, attempts to rouse the Israeli side of the deal have been constant, but so far fruitless.
After its latest deal with France, analysts think Egypt has decisively changed paradigms. Instead of piping gas, Egypt will liquefy it, and ship it abroad as liquefied natural gas (LNG). Expert opinion is that without Israel, the "peace pipeline" makes scant economic sense; politically it makes none. Hurst K Groves, professor of energy strategy at Columbia University and Director of the Center for Energy, Marine Transportation and Public Policy in New York, explained to Al- Ahram Weekly. "Egypt's options to sell gas by pipeline are extremely limited. Libya, Tunisia and Algeria all have large reserves of their own. To the south, there is no obvious, viable market. To the East are Jordan, Syria and Iraq (and ultimately Lebanon and Turkey). Iraq and Syria have their own resources. Jordan is a very small market. Turkey can buy all it needs from Russia, the Central Asian Republics and Iran." Groves also doubts the financial strength of potential buyers in pipeline range. He remarks that, "The only obvious way for Egypt to reach markets of any value [is] by exporting LNG." In other words, though a pipeline is cheaper to build and run, the dearth of strong markets close by (save Israel) makes an LNG project more economic.
Hammouda has scented an additional reason for choosing LNG above pipelines, based on those countries with "large reserves of their own." He told the Weekly that when Egypt has North Africa's major gas liquefaction plants (three major projects are currently mooted), it could build part of the "Arab side" of the peace pipeline -- not to send gas to its neighbours, but to take gas from them. It could then liquefy the gas, ship it and sell it to markets in Europe, becoming the LNG hub for the region. This, he suspects, is the policy-makers' plan. Hammouda points out that proceeding only with Arab partners will also invigorate plans for an Arab common market, and indirectly chide Israel for its political intransigence. Hammouda is also more sanguine than Groves about the justice of sending a pipeline at least to Jordan. For starters, he points out, the MIDTAP pipeline, originally aimed at Israel, already stretches almost to Aqaba; completing it will cost little. He also points out that Jordan needs gas for fertilisers, so demand will be high. Last week, Petroleum Minister Sameh Fahmy confirmed to Al-Ahram daily that work on the pipeline to Jordan will proceed.
There is one further question: will Egypt's new strategy work? The cost of building an LNG project is scary. Groves estimates that building from scratch a plant to prepare three and a half million tons of LNG a year, will cost Egypt just under a billion dollars. Shipping will add another 300 million dollars. The re-gasification plant will cost 200-300 million, and field development an additional 500-700 million. With these costs speeding towards the two billion dollar mark, gas prices, often as volatile as the commodity they value, may well determine financial feasibility. But at the moment, foreign companies seem content to foot the bill. As well as the recent deal with Gaz de France (see box), Eamonn Gearon, chief editor of Oil and Gas North Africa Magazine stressed to the Weekly that Spain's Union Fenosa signed a deal in 2000 to export LNG produced in Egypt to Spain and has reportedly commissioned Bechtel to build a plant. We will know Egypt's prospects for sure in the summer, when the feasibility plans for the Gaz de France deal are due. But if built, LNG facilities will allow Egypt to run a nuanced gas policy, letting it choose how much gas to ship abroad and where, avoiding reliance on a set buyer that is the failing of a pipeline.
There may, of course, be snags as Egypt tries to weave its gas future. That old adversary, Qatar, casts an intimidating shadow. In 2002, engineers will start building a giant, state- of-the-art LNG plant at Ras Laffan in the emirate. They will be racing to beat Egypt and capture Europe's markets. BG Egypt's former president, Peter Dranfield, has spoken of the urgency of developing Egypt's gas industry. "Egypt has a wonderful opportunity [but] if we miss it, the competition will jump in...There are attractive markets in Southern Europe and the US. Once they have been supplied, the opportunity goes away for 20 years." Another possible complication concerns the revenues of the Suez Canal Authority, which smiled on Qatar's plans in 1995, recalls Hammouda, when the emirate agreed to ship its gas through the canal. A final hound hunting Egypt is Turkey. Turkey's ambassador to Egypt told this newspaper in June that his country also wants to be the region's LNG hub. Egypt has an opportunity to move ahead now that Turkey is laid flat by economic misery, thinks Hammouda. But that situation will not last.
Analysts believe Egypt's latest move is smart, its timing good. But all this week, newswires have whirred with reports of others in the region choosing their own moves, showing their own hands.
The stakes are piling up.
Recommend this page
© Copyright Al-Ahram Weekly. All rights reserved
Send a letter to the Editor