GAS: Star scheme to link Egypt and Israel

15 November 1996

ONE project above all others is being publicised by the organisers of the Cairo conference, the Geneva-based World Economic Forum. This is the plan to build a pipeline to take gas from northeast Egypt to Gaza, Israel and Jordan. It is being promoted as an example of private/public sector co-operation, as well as a symbol of regional interconnections.

However, like so many other things, the project has been blighted by the fallout from the political storm that has broken out since the Israeli elections. Officials on both the Egyptian and the Israeli side profess that politics is irrelevant to what is basically a commercial negotiation. But the high-level political encouragement that was clear during the period of the Labour administration in Israel is now conspicuous by its absence.

The basic commercial and technical situation is unchanged: Israel will need imported gas from 2000 onwards, and Egypt is the closest and cheapest potential source. Nevertheless, both sides say they are looking at a range of alternatives.

Ron Croll, budget director of the Israeli Finance Ministry, told an Istanbul conference in October that one of the most attractive prospects would be to have a pipeline from the newly discovered and reportedly prolific Tabuk gas field in Saudi Arabia. Another possibility being considered is a combined gas and water pipeline from Turkey - the gas coming to Turkey from Russia or Turkmenistan.

Israel has also been looking at the possibility of importing liquefied natural gas (LNG). The prime source for this supply is Qatar, one of the few Gulf Arab states due to attend the Cairo conference. Israel signed a memorandum with Enron Development Corporation of the US at last year's Amman economic conference, covering the supply of 2 million tonnes a year of gas from Qatar. That agreement has since been cancelled, but Enron says it is still hopeful that the deal can be revived in the future. Israel could also import LNG from other sources outside the Middle East, such as Australia or Nigeria, but at greater cost.

Egypt has been considering the option of subsea pipelines to Lebanon, Turkey or Greece, as well as exporting its gas as LNG.

The only one of these options being pursued on a practical level is the Egypt-Israel pipeline. The gas would come from fields discovered in the past two years by Amoco Corporation of the US and Agip of Italy, which operates in Egypt as the International Egyptian Oil Company (IEOC). By the early years of the next century, these fields are expected to be producing more than 500 million cubic feet a day (mcf/d).

By that time, new gas production from elsewhere in Egypt should be sufficient to bridge the gap between domestic supply and demand. Output is now about 1,400 mcf/d; industry sources say demand is roughly 1,600 mcf/d. The gap is currently dealt with by power stations burning oil instead of gas. The first new field to come on stream will be Obeiyed, operated by Shell Egypt in the Western Desert. It will produce 300 mcf/d from 1999. At around the same time, Repsol of Spain will bring on stream its nearby Khalda gas field at some 110 mcf/d.

Israel is planning to start consuming gas in 2000. It will start at a modest 600 million cubic metres a year (mcm/y) which is roughly 60 mcf/d, rising to 3,900 mcm/y in 2005.

At present, companies operating gas fields in Egypt give part of their production to the Egyptian General Petroleum Corporation (EGPC) free of charge, and sell the remainder, consisting of cost recovery and profit shares, at a price linked to crude oil prices. It is not yet clear whether the supplies to Israel would only consist of the companies' shares, or whether it will include some of EGPC's share.

Whatever the case, any pipeline work will have to wait until the two sides have signed a firm sales and purchase agreement. They have been discussing such an agreement for two years, but there has been no sign of significant progress, particularly since the election of Benjamin Netanyahu as Israel's prime minister.

On the Egyptian side, officials say they do not believe Israel will be ready to import gas in significant quantities much before 2005. But, in the absence of many other examples of co-operation between the two sides, the gas pipeline project is sure to receive considerable attention during the Cairo conference.

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