One step forward

Despite the extensive dispute in Israel, the Israel Electric Corporation agreed to pay much more for the Egyptian natural gas

The Israel Electric Corporation (IEC) will be paying more for the natural gas it buys from the Egyptian gas supplier East Mediterranean Gas Company (EMG), which is partly owned by Israeli Joseph Maiman in addition to the Egyptian businessman Hussien Salem. EMG, one of only two natural gas suppliers to Israel, is an Egyptian-Israeli consortium that sells the Egyptian gas to Israel. Whilst, the other gas supplier company is Yam Tethys which is jointly owned by Delek Group Ltd. and Noble Energy Inc.
IEC’s board approved amending the natural gas supply contract with EMG by a six-to-three vote, according to the Economic Israeli newspaper Globes. However, the Israeli newspaper Haaretz mentioned that the vote was 6:2.
The climax of the dispute on raising the Egyptian gas prices occurred when Delek Group requested from IEC not to reopen talks with EMG about amending the contracts. However, IEC rejected the demand and the board agreed to change the terms of its agreement with EMG – and pay more. Nevertheless, the reopening of the deal will require the approval of the IEC’s shareholders, in this case the Government Companies Authority (GCA). The GCA has 45 days to decide.
According to Globes, the new price will reportedly be $4-4.50 per million British Thermal Unit (BTU) – 50% more than the current price whereas the original purchase price is estimated at $2.75 per million BTU.
In addition to the price change, the IEC said the revisions to the contract also include a reduction in the base quantities to be sold as well as other measures that will guarantee gas supplies.
The IEC justified the higher costs by saying the revised agreement will help guarantee a steady supply of gas. In a statement, the company said that due to changes in the global fuel market and the cost of gas production in Egypt, as well as political pressures there, Egyptian gas companies have changed the price of gas for export.
“The oil sector played a difficult and arduous role in the negotiations to amend the contracts of exporting natural gas and these efforts have succeeded in modifying a number of contracts which the EMG’s contract was one of them,” Eng. Ismail Karara, former Egypt’s First Deputy Petroleum Minister, told Egypt Oil & Gas.
“Amending the price was a must in order to fit with the global changes. While any talks about Egyptian losses due to the low old price are not true since the quantities of gas which has been flowed to Israel was for experimental purposes only.
“EMG also exerted great efforts to adjust the contracts with IEC as the company played a difficult role to withstand the contest of the other competitor and finally convinced the electric company to agree on amending the contracts,” Karara added.
“After the new modification, the price is fair enough for us and for EMG as the company was eager to compensate their investments by such amendments.”
Earlier, IEC offered Yam Tethys the possibility of expanding natural gas deliveries as a kind of compensation for reopening the EMG contract. However, Yam Tethys rejected the offer in a letter to IEC CEO Amos Lasker. Tethys wrote, “We reject your offer. IEC has behaved toward us with utter disregard for equality, which constitutes a breach of commitments toward the company.”
Tethys also claimed that raising the price for EMG “violates the principle of the requirement of equality” which it has, and also said that it “violates all the contractual obligations of IEC to Yam Tethys.”
IEC said in response, “IEC rejects all the allegations made by Yam Tethys. Its claims are baseless both factually and legally.”
On the other hand, EMG shareholder Merhav MNF Ltd., owned by Maiman, is not ignoring the pressure that Delek, controlled by Yitzhak Tshuva, is applying on IEC. Merhav said, “It is astonishing that Delek has chosen to ignore the drastic change in energy prices. It is clear to us that Delek is afraid of competition because of the fact that our prices were always, and always will be, lower than the market price.”
Egyptian gas started flowing to Israel through a pipeline in May 2008 under an agreement signed in 2005 for the supply of 1.7 billion cubic meters annually over 20 years.
“Compared to the international prices, the new reported price is very good,” Eng. Ibrahim Eissawy, a petroleum consultant and a former Egypt’s Frst Deputy Petroleum Minister for Gas, told Egypt Oil & Gas.
According to CNN, the price of the natural gas is in the average of $3 – $4 per million BTU.
“I hope that the Israeli Authorities will agree on the new price to be a final price. However, we export the gas to Syria by about $4.5 – 5/ million BTU,” he emphasized.
“Although the new price of IEC is lower than the Syrian one but that’s originally because the first price which we started to export the Gas for Israel by it was too low,” Eissawy explained.
The IEC’s chief executive, Amos Lasker, said the supply of Egyptian gas would allow the company to meet its target of producing 40 percent of Israel’s electricity from natural gas. He said being dependent on a single supplier would mean the company would only be able to use gas for 25 percent of its electricity production.

By Ahmed Morsy


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