Israel has options to overcome loss of Egyptian gas (REUTERS) By Ari Rabinovitch JERSALEM, ISRAEL 04/23/12 11:32am EDT)
Reuters News Service
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(Reuters) - Israel´s energy sector will be hurt in the short term by
Egypt´s decision to stop selling it natural gas, but the country has
been weaning itself off the once-crucial supplies and has a number of
contingency plans that will lessen the impact.
Sunday´s announcement that Egyptian state-owned oil and gas companies
would stop the gas sales, which were part of a 20-year deal, was the
dramatic conclusion to a year of sabotage and pipeline attacks that
had already disrupted supplies.
"It´s an unfortunate announcement, but in no way is it a surprise. It
sums up a reality that has existed for more than a year," Israeli
Energy Minister Uzi Landau told Reuters.
"Nearly two years now we have been preparing for a halt in supplies.
So, while it causes great discomfort and will bring a rise in energy
prices, Israel has been developing its energy market without
depending on this gas," he said.
The gas deal, signed in 2005, was the most significant economic
agreement to emerge from the historic Israeli-Egyptian peace treaty
But ties have been strained since Egyptian President Hosni Mubarak,
an advocate of the peace deal, was toppled by a popular revolt last
To avoid further tension, Israel´s leaders have described Egypt´s
move to stop supplying gas as a business, rather than diplomatic,
decision. Egyptian officials also said ending the contract was a
Gas from Egypt once accounted for about 40 percent of Israel´s
reserves of natural gas, the country´s primary energy source. But
with pipeline attacks in Egypt´s Sinai peninsula stopping flows for
most of 2012, Israel has looked elsewhere.
Its own newly discovered reserves from huge offshore gas fields will
secure Israel´s energy needs for decades, even making it an exporter,
but the first field, Tamar, will only come on line around April 2013.
The even larger Leviathan prospect is due to begin production around
In the meantime, the government is rushing construction of an off-
shore liquefied natural gas terminal to receive imports, has told
exploration firms to speed up drilling on smaller, more accessible
fields, and is planning to import a fleet of portable generators to
prevent blackouts this summer.
Israel´s electric utility - without Egyptian gas and with the
country´s sole working gas field nearly depleted - has turned to more
expensive and dirtier fuels like diesel and fuel oil, causing
electricity prices to surge.
The mostly underwater pipeline at the centre of the matter was built
and is operated by the Eastern Mediterranean Gas Co (EMG), whose
shareholders include Egypt Natural Gas Co, Thai energy giant PTT,
U.S. businessman Sam Zell, Israel´s Merhav and Ampal-American Israel
In 2010, EMG provided 2.5 billion cubic meters (BCM) of gas to
Israeli customers. But that number was expected to more than double
throughout the 20-year deal.
Once the pipeline attacks began, Ampal, together with PTT and Zell,
took legal action against the Egyptian government, seeking $8 billion
in damages for not safeguarding their investment.
One official with knowledge of the affair told Reuters, on condition
of anonymity, that Egypt´s latest decision could be a manoeuvre to
help it in the legal proceedings.
Ampal´s stock closed down 19.2 percent in Tel Aviv to 0.775 shekels,
a new 52-week low.
In the past year, with supplies from Egypt stopped for more than 200
days, Israeli power plants and major industrial players have signed
multi-billion dollar contracts to buy gas from the offshore Tamar
So Sunday´s announcement was a good one for the Tamar consortium, led
by Texas-based Noble Energy and Israel´s Delek Energy, said UBS
analyst Roni Biron.
"Most companies are not looking at Egypt as a reliable source of gas
due to the repeated attacks on the pipeline and the geopolitical
landscape, so you can´t base a work plan on such unpredictable gas
flows," he said.
(Additional reporting by Steven Scheer; Editing by Tova Cohen and
Helen Massy-Beresford) (© Thomson Reuters 2012. 04/23/12)
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