Price adjustments to gas exports only open the door to more questions, Sherine Nasr reports When it comes to Egyptian natural gas exports, particularly to Israel, officials are ready with explanations, but never figures. On 16 January, Abdel-Alim Taha, executive director of the Egyptian General Petroleum Corporation (EGPC), told the daily Al-Alam Al-Yom that the net profit of selling gas to Israel averages the profits of selling Egyptian gas to any other country and that it is, by far, more profitable than selling gas to the local market. Taha further underlined that the East Mediterranean Company (EMC), the private entity in charge of delivering Egyptian gas to Israel, shouldered the full costs of transporting the gas, which were estimated at $500 million. "Neither EGPC nor the Egyptian Natural Gas Holding Company [EGAS] bore any costs for the project," he said. His statements came in the backdrop of ongoing disputes about the futility of selling Egyptian gas at marginal prices while facing ever- growing demand locally and increasingly tighter resources. Taha confirmed that Egypt is in the process of re-evaluating its long-term gas contracts -- Israel's being no exception -- in an attempt to introduce adjustment clauses to raise prices so that they would become more compatible with the prices on the international market. "There are many variables to a gas contract and price comparisons should be made in light of different factors, including transportation fees, place of delivery and obligations by both parties. Otherwise, comparisons would be misleading," said Taha who added that new developments in the gas market have paved the way towards negotiating better prices. "The petroleum sector is currently holding negotiations with EMC to adjust gas prices in accordance with current prices in the international market. Moreover, we are demanding to include adjustment clauses by virtue of which prices would be examined each five years for further upgrading." A more clear-cut statement could be made? Are energy experts now satisfied? Not in the least. "We need answers for simple, very basic questions: What is the exact price for selling gas to Israel? How much profit does Egypt make out of it? And what is the return from the recently introduced adjustment clauses? Unless the petroleum sector is transparent about these issues we will continue to believe that their talk is for media consumption," said Ibrahim Zahran, former chairman of Khalda Petroleum Company and member of the National Specialised Councils. Last Saturday, disputing parties -- namely, the EGPC and activists against selling gas to Israel -- stood before court in one of a series of hearings in their long battle to stop Egyptian gas being exported to Israel. The dispute started in March 2008 and a verdict may be reached on 27 February. "The judge could not be more articulate. EGPC is demanded by the court to present documents that will verify the price, the cost and the return from selling gas to Israel. If it fails to do so it will put itself in a very awkward position," said Zahran. As an energy expert, Zahran argues that adjustment clauses can be introduced to long-term gas export contracts at any time to adjust the price for selling gas if the government so perceives. "A country can introduce adjustments to these contracts if factors such as the timing, the pricing or the local demand are believed to be not in favour of this country's best interest. Thus, there is more than one exit from the situation in which we have been stuck for too long. The political will is what is lacking," said Zahran, who added that the newly introduced suggestion by some members of the National Democratic Party (NDP) to import gas from Iraq have posed another important question: "Why sell gas to Israel at $1.65 per one million Btu [British thermal unit] while buying it at an average of $7 per one million Btu from Iraq?" Zahran inquired. According to Magdi Sobhi, an oil expert from Al-Ahram Centre for Political and Strategic Studies, the pricing issue has been vague from the beginning. "So far, the government has not been open about the price for selling Egyptian gas, not only to Israel but to any other country such as Spain and France," said Sobhi, adding that the problem with the Israeli contract is that the selling price does not surpass the cost price, and it was concluded in 2004 when international prices for gas hovered around a minimum of $9 to $14 per one million Btu. "This is one reason why we think gas contracts by the petroleum sector are questionable," said Sobhi. The fact that adjustment clauses were not included in the first place, as is the international norm, is even more suspicious. "There is a widely prevailing international trend that favours gas over oil as an environment friendly source of energy. Unless the ministry is clear about the actual prices for selling gas, the perception that Egypt is selling gas at a loss will continue to persist." The petroleum sector started to negotiate price adjustments with a number of gas importers including France and Spain in 2008. According to the ministry's statements at the time, more favourable prices could be reached with Gas de France and the Spanish Union Fenosa. During the same period, Sameh Fahmi, minister of petroleum, announced that no more deals to export gas would be concluded until 2011 and that priority would be given to cover growing needs in the local market.
