UK oil and gas company BG Group has responded to dramatic fuel subsidy cuts in Egypt by saying the government needs to do more than reform the countrys subsidy system to regain the trust of foreign companies.
On Saturday 5 July fuel subsidies were slashed seeing some fuels jump in price by much as 80 per cent as part of an austerity drive by President Abdul Fattah al-Sisi.
The subsidy hike is a step in the right direction, but there are still a number of important issues that need attention. One key issue is receivables. Another is gas flow into the plant, said BG Group spokesman Neil Burrows.
In January this year, BG Group declared force majeure in Egypt due to the diversion of gas to away from its processing facilities to meet increasing domestic demand.
It has also suffered outstanding payments from the government to the tune of hundreds of millions of dollars. On 29 April, BG said in a statement that it was owed $1.4bn by the Egyptian government and half of it overdue.
BGs call for more reforms from the Egyptian government comes in the wake of signing a preliminary agreement with the partners in Israels Leviathan natural gas field: Avner Oil & Gas, Delek Drilling, Ratio Oil Exploration, all of Israel, and the US Noble Energy.
The deal under discussion would see BG export gas from the Leviathan field to its Idku liquefied natural gas (LNG) plant in Egypt. Leviathan would supply 7 billion cubic metres of LNG a year for 15 years through an underwater pipeline, according to a statement by the partners on 29 June.
Due to lack of feedstock, BGs Idku LNG export terminal has seen a steady decline in output over the past year and Egypts second LNG terminal, which is operated by Spains Gas Natural Fenosa, has been idle since 2012.
The recent preliminary agreement could forge a deal that will be beneficial to both parties, according to Trevor Sikorski, Middle East and North Africa natural gas analyst at UK-headquartered consultancy Energy Aspects.
Selling Israeli natural gas via Egypt makes economic sense, he says. Israel is already talking about sharing a brand new LNG facility with Cyprus and this should be far cheaper.
Egypt previously exported gas to Israel through an undersea section of the Arab Gas Pipeline, but over recent months surging demand for gas at home has forced Egypt to seek natural gas imports to meet demand. Due to natural gas shortages in Egypt the gas supply to Israel was suspended in 2013.
As Egypts gas production surplus has waned Israels gas producing potential has rocketed with the discovery of the Tamar oil field in 2009 and Leviathan in 2010. Leviathan has been estimated to contain as much as 450 billion cubic metres of natural gas and could start production as early as next year.
Using Egyptian facilities to export Leviathan gas would be very sensible from an economic point of view, but it remains to be seen whether politics will allow it, said Sikorski.
Relations have thawed between Israel and Egypt since Muslim Brotherhood member and former president, Mohamed Mursi, was removed in a violent coup in 2013, but many Egyptians remain suspicious of close cooperation between Egyptian and Israeli officials. Anti-Israeli sentiment could well be exacerbated by any deterioration in Israeli-Palestinian relations.
On 6 July, three days after Israel ordered troops to the border of Gaza amid escalating tensions, Egypts Petroleum Minister Sherif Ismail told local media that there was no shame in allowing BG to import natural gas from Israel. He also said he was in talks with BG Group to try to stop any international arbitration against Egypt.
Whatever is in Egypts interest must be implemented immediately, as we are dealing with an energy crisis, he said.