Spreading the net

15 March 2002

With political tension brewing around the fault line of the Israeli-Palestinian conflict, security will be a prime consideration for contractors working on the Egypt/Jordan gas transmission project. The delicate political nature of cross-border pipelines has persuaded Cairo to keep a close watch on its side of the project. Government interest in the tributary stretch of the gas network has influenced the managerial structure of Al-Sharq Gas Company, the project developer, which features a strong showing of heavyweights from the Egyptian political establishment. Local contractors have been favoured for the onshore section of the pipeline running from El-Arish to the Gulf of Aqaba, which is being built by Engineering for the Petroleum & Process Industries (Enppi) and Petrojet.

Israel was originally intended to be the first customer of a regional network for Egyptian gas exports. Under plans drawn up in 2000, the pipeline would have adopted a subsea route through the eastern Mediterranean. A deal was subsequently announced in early 2001 whereby Egypt would supply some $3,000 million of gas to Israel over a 10-year period. While this agreement has not officially been discarded, the likelihood of Egyptian gas exports to Israel has diminished as a result of the Israeli-Palestinian conflict, and the distribution network has been re-routed through Aqaba.

The possibility of a bilateral gas supply deal between Egypt and Israel has not been ruled out, according to Sue Parsons of Arthur D Little of the US, which is advising the Jordanian government on its own section of the pipeline. 'As far as I am aware the Egyptian government is still actively in discussions with Israel about the possibility of a gas deal, but this is [now] a separate consideration from the regional transmission network.'

In comparison with Israel, Jordan is clearly not a major market for exports of Egyptian gas, and the economics of the new cross-border pipeline would seem questionable were it not for long-term, long-distance prospects. Under an agreement signed in June 2001, Al-Sharq will provide Jordan with some 1,000 million cubic metres a year (cm/y) of gas for 15 years from 2003, but the pipeline will have a total capacity of 10,000 million cm/y to allow for future sales of gas to Syria and markets beyond.

With work now under way on the Egyptian section of pipeline, as yet there have been no firm commitments from any potential customers besides Jordan. However, Damascus and Amman are understood to be close to an agreement on a third phase of the network. 'We expect something to emerge very soon,' Jordanian Energy & Mineral Reserves Minister Mohammed Batayneh told MEED on 12 March. 'We are planning a meeting between the two oil ministries within the next two weeks, and there will probably be an announcement by the end of the month. Hopefully, this will mean a firm agreement between us.'

Lebanon has also made overtures to Egypt, Cyprus and Syria to secure its place in the network. Under a deal signed between Damascus and Beirut in December, Syria has agreed to deliver some 210 million cubic feet a day of gas to the Deir Ammar power station at Beddawi. The pipeline will connect to the existing Homs-Banias gas line. According to Cypriot Commerce & Industry Minster Nicos Rolandis, Nicosia and Damascus have also discussed the possibility of Cyprus becoming a base for liquefied natural gas (LNG) for export to the growing markets of Europe.

Meanwhile, work on the Egyptian project is well under way. Al-Sharq is studying bids for the construction of the 17-kilometre subsea link which will connect the trans-Sinai pipeline to Aqaba. First delivery of gas is expected at the beginning of 2003, and will initially be used by the Aqaba power station, which is being converted from fuel oil to gas by Alstom of France. The Jordanian transmission network will eventually deliver gas to power stations in the north of the country.

The 370-kilometre Aqaba-Amman section has been slower to get off the ground, partly due to the decision by the Jordanian government to pursue a build-own-operate (BOO) model and private financing for the project. At the request of several potential bidders, the deadline has been extended by a further two weeks to 4 April.

'There is still very strong interest in the pipeline,' says Parsons. 'We are talking about 20 or so companies now forming consortia'. However, the project has been delayed several times since the tender was first floated in September. 'The whole thing has been more complex than I think many of the bidders expected.Each consortium would have to contain at least two or three companies, to cover the range of expertise required, from financing through to the physical construction of the pipeline and marketing of the gas. It takes a great deal of preparation.' Evaluation of bids will take about two months, and a contract award is expected in June. 'We're taking it stage by stage,' says Parsons. 'There's only one way to approach something this size, and that is one step at a time.'

Digby Lidstone

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