Petroleum sector under reform

Officials, investors and experts are keeping a close eye on the reform steps that have been taken by the Ministry of Petroleum. Since the pricing of gas exportation has been the core of a vigorous public attack on the Ministry, most of the present reform attempts have tackled this problem to ease the public anger and fortunately, they achieved some positive results. Yet, more efforts are need to be on the right reform track

For months now, negotiations have been held between the Egyptian side and the Jordanian and Israeli officials to amend the prices of Egyptian exported gas. Recently, Jordan agreed on increasing prices of gas exports to $4 per million btu, from the initial price of $1.5 per million btu. This increase in the selling price means an increase of $200 million to Egypt’s revenue. The success of the Egyptian-Jordanian negotiations crowns the struggle of the Egyptian society to alter all figures of corruption and implement a complete makeover, whether politically or economically.

The Jordanian-Egyptian talks took long time to be finalized and final agreement was not easily concluded as it sounded. The case is even harder when it comes to the Israeli debate. Egypt’s gas exports to Israel date back to the peace treaty signed in March 1979. However, the gas exportation deal has been effective since 2008. The Egyptian gas is exported to the Israeli territories through the pipeline laid by the East Mediterranean Gas Co. Ltd. (EMG). This company is an owner and operator of the Arish-Ashkelon pipeline. It is a joint company of Mediterranean Gas Pipeline Ltd (28%), the Israeli company Merhav (25%), PTT (25%), EMI-EGI LP (12%), and the Egyptian General Petroleum Corporation EGPC (10%). It is worth mentioning that the gas export agreement to Israel was through the well-known controversial businessman Hussein Salem’s private company with no notice to official documents from the Egyptian Ministry of Foreign Affairs.

Eng. Abdallah Ghorab, Minister of Petroleum stated that negotiations with Jordan are almost over. “Egypt and Jordan signed two gas exportation agreements in 2003 and 2007, each had different volume of exported gas at different prices. The terms of the first one stated that 77 billion cubic feet are exported to Jordan at the price of $1.27 per million btu, while the second agreement specified the exportation of 32 billion cubic feet of gas at the price of $3.06 per million btu,” clarified Ghorab.

Fortunately, Jordan and Egypt resorted to a fruitful solution to this critical issue. But, on the other side, the Israeli side is waving the possible international arbitration, which could be a threat to Egypt. According to a top official in the Ministry, the American partner of EMG has already warned the Egyptian Natural Gas Holding Company (EGAS) that Israel will seek international arbitration if Egypt does not resume pumping gas to Israel based on the prices agreed upon in existing contracts. However, Egyptian officials have rejected Israel’s threats and are adamant that they will adjust the prices and only resume pumping gas after agreement is reached.

“Even if they are threatening us by the international arbitration, we should not forgo our rights. Egypt has been financially losing for years, and now we are experiencing a severe economic meltdown, hence this is the time to save our resources and stop this catastrophic financial drainage,” a petroleum expert angrily described the situation to Egypt Oil & Gas. “Some condemn the Ministry for resuming the gas exportation without concluding the current pricing negotiations, but if we look to the big picture, this step will show how the Egyptian authorities take liability for any signed agreements even during such tensioned times. It will be crystal clear to the international arbitration that Egypt does honor all signed deals, though it is seeking fair prices for the exported gas.”

The official source highlighted that the Ministry would have stopped the gas exportation immediately, but due to the current economic situation, the Ministry has resorted to the diplomatic negotiations, which were fruitful to a great extent.

Asked about the effectiveness of the public pressure, he declared that the public opinion does play a critical role nowadays. “The issue of gas prices has been a massive point of tension and the strong calls to amend prices have been a key element affecting the performance of authorities.”

He further added that the Egyptian government should better utilize its sources, especially the natural gas. “Currently, the natural gas production stands at a daily rate of six and half billion cubic feet.”

According to source in the Egyptian Natural Gas Holding Company (EGAS), the resumption of gas exportation to Israel and Jordan, but at lower quantities (25% to 30% of the agreed volumes), will pressure the Israeli side to accept the price amendments and conclude the negotiations in a positive way, similar to the Jordanian resolution.

As a matter of fact, the Israeli officials have been contacting the Egyptian Ministry of Petroleum for gas resumption. Back to July 2009, Egypt agreed to increase the quantities of natural gas exported to Israel at a higher gas prices, compared to the initial agreement.

Egyptian gas stoppage will cost Israel an estimated $1.5 million daily, according to Globes.

To meet demand the Israel Electric Corporation (IEC) has been forced to purchase gas at higher rates from Israeli billionaire Yitzchak Tshuva’s Yam Tethys, and to generate gas-using diesel, which accounts for the $1.5m increased daily price tag.

Israel’s Minister of National Infrastructure Uzi Landau convened emergency meetings to discuss ways to accelerate key initiatives to protect Israel’s gas supply and electricity production. Among those initiatives are the construction of new power stations in Israel, and a floating gas terminal to receive gas from the Tamar and Leviathan fields in the area of Eastern Mediterranean.

Tshuva’s company is also at the heart of the initiatives Landau seeks to accelerate. In 2009, Yam Tethys beat out its main rival, Egyptian-based Mediterranean Gas Company, to supply Israel with natural gas from the Tamar and Leviathan fields.

Tshuva, who owns 53% of Yam Tethys – Noble Energy, Inc. (headquartered in Houston, Texas) owns 47% – won a five-year contract to furnish natural gas to new power plants that IEC is building to meet increased demand for electricity in Israel.

Adjusting the gas prices has become a key demand of the revolutionaries, which led the interim Prime Minister Essam Sharaf to promise to review the existing agreements. The Petroleum sector has always been a chief contributor to the national economy, hence the reform road will be way long, may require several years, but there is always a hope for a better tomorrow.

By: Shady Ahmed


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