Much ambiguity and many objections have surrounded the issue of Egyptian gas exports to Israel. In the beginning, information about the prices agreed upon was withheld, and many Egyptian petroleum experts strongly objected the unfairness done to Egypt as a result, while the country was in dire need for natural gas for its development and the possibility of developing industries in Sinai, not to mention the extremely low sale price of Egyptian gas. On April 21, the chairman of the Egyptian Natural Gas Holding Company (EGAS) Mohamed Shoeib said that EGAS's and the Egyptian General Petroleum Corporation (EGPC)'s accord was "annulled on Thursday (April 19) with the East Mediterranean Gas Co. (EMG) because the company failed to respect conditions stipulated in the contract". The announcement was welcomed by the Egyptian public. While Egypt confirmed that the measure is a purely commercial dispute, that it is not motivated by any other considerations, and that it does not reflect the views of the state, it is clear that no state-owned company can make such a decision without receiving a green light from the highest political authorities - i.e. the Military Council in this case. In Israel, meanwhile, some officials expressed their concerns about this ‘dangerous precedent', despite the fact that Prime Minister Benjamin Netanyahu had stated that this gas cutoff is actually a business dispute, and stressed that Israel can avert supply shortages. Netanyahu's position is understandable, since he is awaiting the court verdict on the dispute among the companies, before he states his final opinion on the matter. The export of Egyptian gas to Israel is a trading scandal par excellence, because of the sale price. Indeed, the price agreed on in the beginning was in the range of $ 0.7-1.5 per one million Btu, but as a result of opposition in the Parliament and the press, the price was adjusted to about $ 3.6. While no standard international prices exist for natural gas, as is the case with petroleum, gas prices in both long-term and spot contracts have ranged between $ 4-20 per million Btu. For example, Qatar sells gas to China at $15 per million Btu. EMG (an international company with stakes owned by Egyptians, Israelis, Americans and Thais) delivers around 1.7 billion cubic meters of Egyptian gas to the Israel Electric Company (IEC), over a contract period of 20 years. But after the uprising last year, there was talk of huge bribes paid to high ranking officials, in order to get an approval for the gas deal, and the issue is now being investigated by the Egyptian courts. In this vein, presidential hopeful Amr Moussa said that severing the agreement between Israel and Egypt was “a natural step in light of information relating to corruption which tarnished this deal.” It could be argued that the decision to halt gas exports is essentially an economic/political one, because the agreement has been causing Egypt financial damages as a result of price undervaluation, incurring hundreds of billions of dollars in lost revenues for Egypt. Therefore, as a result of sharp political disputes in Egypt these days, the gas cutoff to Israel – should it continue – represents a winning card in the hands of the Military Council, given the popularity of this decision in Egypt, not to mention the fact that it would improve Egypt's negotiating position in its bid to obtain a higher price. On April 24, Minister of Planning and International Cooperation Faiza Abul-Naga said, according to Al-Shourouq, that this decision had not been made haphazardly, but came after foreign partners were notified by the Egyptian side five times about past-due amounts, the last notification having been sent on March 31, and according to Abul-Naga, they failed to pay these amounts. Abul-Naga also said that Egypt “is willing to renegotiate the deal, though it would be under a new contract, with new terms”. However, international shareholders in EMG denied that the decision to cutoff gas exports to Israel “is only the result of a commercial dispute”, and stressed that they have attempted to negotiate with the Egyptian government to adjust gas prices “to no avail”. In a statement circulated by Reuters, they said that any attempts to characterize the dispute as being purely commercial are misleading. They also said that they would continue to take legal action to receive damages as a result of supply disruptions. The Camp David agreement stipulates that Egypt is only responsible for supplying Israel with crude oil, without mentioning natural gas exports to Israel. Egypt supplies about 43 percent of the total gas consumed by Israel. The rest comes from Mari-B field located in Israel's southern territorial waters, adjacent to Palestinian waters. Gas is used in Israeli power plants, and gas shortages are offset by importing Fuel Oil, which means that the Egyptian gas cutoff threatens to raise the electricity bills in Israel. But Israel expects that this problem will be resolved in April 2013, when production from the Tamar field is set to begin. In truth, production from this field will be a very important milestone for the Israeli energy industry, and perhaps this explains Netanyahu's sense of reassurance with regard to the gas supply shortage. However, the interruption of Egyptian gas supplies represents a security concern for Israel, as a result of what the Israelis see as a serious deterioration of security conditions in Sinai. The gas terminal in North Sinai has been targeted with 14 explosions since the beginning of the uprising last year. According to Israeli statistics, this means that gas flowed for only 25 days over a period of 113 days. What is also a source of concern for Israel is Egypt's inability to protect gas installations in Sinai. It is worth mentioning that the gas platform at Al-Arish serves both the Arish-Ashkelon pipeline, and the Arab gas pipeline. For this reason, the explosions also halted gas exports to Jordan, Syria and Lebanon, causing a large deficit in the electric capacity of these countries. Whatever the reasons behind the cutoff of Egyptian gas exports to Israel may be, and even if the cutoff is temporary, the decision is actually both political and economic, and is a sign of a new state of tensions between the two countries, with many implications, including: Increasing Israel's lack of confidence in the seriousness of economic agreements with Egypt or any other Arab country in the long run, as well as fears in Israel of the repercussions of the explosions over the lax security situation in Sinai, and subsequently along its neighboring borders. *. Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
