‘No such thing’ as global market rate for natural gas'

Experts dismiss Egyptian claims; corruption investigations by Cairo are just a "front" to end agreement with Israel, they say.

By
April 27, 2011 04:53
Hosni Mubarak

Mubarak 311 Reuters. (photo credit: REUTERS/Amr Abdallah )

While the Egyptian public prosecutor has announced that Egyptian officials will face a future trial for both “squandering public funds” by selling gas to Israel at a price below global market rates, natural gas experts maintain that there really is no such thing as an internationally accepted rate for gas sales.

The prosecutor on Saturday ordered Egypt’s former energy minister Sameh Fahmy as well as six other officials to be investigated on charges related to East Mediterranean Gas’s natural gas deal with Israel, which the new government said caused losses of more than $714 million, Reuters reported.

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The officials will be charged with “committing the crimes of harming the country’s interests, squandering public funds and enabling others to make financial profits through selling and exporting Egyptian gas to the state of Israel at a low price below international market rates at the time of the contract,” according to Reuters.

In addition to Israel, the government is also planning on reviewing its natural gas deals with several other states, including Jordan.

“There’s no such thing as a global natural gas price,” said Prof. Brenda Shaffer, an expert on energy policy and management at the University of Haifa. “It’s not like oil – that’s an integrated global price.”

Anonymous Egyptian government officials told The New York Times that the price of gas sold from Egypt to Israel was renegotiated in 2008 to $4 per million British thermal units from a previously set price of $1.25 per million, while in comparison, Turkey, Greece and Italy were paying between $7 and $10 per million for their natural gas, according to Nikos Tsafos of PFC Energy in Washington, who confirmed that there “there is no global benchmark global price for natural gas” in the same Times report.

Such a “global price” would be impossible, according to Shaffer, who said that what Turkey or Greece or Italy pays for gas is completely irrelevant to what Israel pays, as they get their gas from different sources – Israel from itself and Egypt, and Turkey from Russia, Azerbaijan and Iran, for example.

Greece gets its gas from Russia, Azerbaijan via Turkey and also receives Liquefied Natural Gas (LNG), while Italy gets its share from Russian, Algeria, Libya and LNG as well, she continued.

“There is no global price of gas because the price of getting gas to a far-away destination through turning it into LNG far exceeds [the cost of] getting gas to Israel via the pipeline,” agreed Dr. David Wurmser, founder of the Delphi Global Analysis Group and a consultant to Israel’s offshore drilling teams, as well as a former senior adviser on the Middle East to then-US vice president Dick Cheney.

“Egypt may be getting a lower price for the gas itself from Israel, but it also has to pay a lot less to get the gas to Israel.”

Meanwhile, at the time of the gas deal with Egypt, whereas a place like Turkey was choosing among several competing countries from which to purchase its gas, Israel was choosing between coal and Egyptian gas – two entirely different situations, Shaffer explained.

“Only if the price was really attractive would Israel take the risk of a gas investment,” she added.

“The whole question is really where the revenues went,” Shaffer said. “There’s no such thing as a global price. Probably Israel paid whatever price made sense in terms of supply and demand, but there is a question of whether the money reached the budget in Egypt or the Mubarak clan.”

In Shaffer’s view, this part of the deal – the idea that former Egyptian president Hosni Mubarak’s officials may have been part of a scam to pocket revenues – is the only thing really worth investigating on the government’s part, but it has nothing to do with the pricing of gas to Israel, she said.

“In terms of the idea of a global price, there isn’t anything [here] that makes sense,” she explained. “It seems like they’re going to cut supplies to Israel anyway, why not get political gain on it?” But as far as hunting down where exactly revenues from the sales have gone, “that’s something that’s fair of them to be investigating,” Shaffer said. “This is not saying anything about Israeli behavior but of the people around Mubarak.”

If the Egyptian officials are going to investigate sales made to countries like Israel and Jordan through direct pipelines, however, she maintained that Cairo must also look into transactions it made selling LNG to European markets and before the American discovery of oil shale, to the US.

Currently, the Egyptian pipeline that runs through the Sinai Desert splits between Israel and Jordan, and from Jordan also heads to Syria, where some of the gas is likewise re-exported to Lebanon, Shaffer said.

“Whatever price was negotiated between Israel and Egypt has nothing to do with corruption,” Wurmser said. “The corruption is whatever piece the government [officials] might have pocketed personally.”

Wurmser agreed with Shaffer that in theory, it is smart for the Egyptian authorities to be trying to tackle the country’s past potentially fraudulent behavior, but for a number of reasons he believes that this is not the new government’s primary goal.

“It is tactically wise for the opposition to do this, but one shouldn’t have any illusion – the target of this is Israel,” he said.

“There’s definitely legitimacy in targeting corruption – any regime in the Arab world is endemically inflicted with corruption, and it needs to be addressed for the region to move forward,” Wurmser continued.

“But if corruption was really the only issue here, then I’m rather surprised that a lot of the top leaders in the military are not being investigated as well.”

Wurmser called the corruption allegations “a mechanism for political attack right now, rather than a political value” and described the whole situation as “a game of political realignment in Cairo.”

Investigating both the prices and the corruption, he said, is just a front to show “that somehow this leadership was in bed with the Israelis to give the Zionist entity the better deal,” not “that Mubarak took certain percentages.”

Ultimately, he said, it’s a way to get out of the gas deal with Israel.

“I think that the intention is also to threaten even the military, that if it continues the gas deal that it too could be put on trial,” Wurmser added. “So the military will be forced to renegotiate the price with Israel to show that it’s not part of this corruption. But it will have to renegotiate it at such a high level that Israel will say no…forcing Israel to end the gas trade.”

But regardless of who would end the deal, Shaffer maintained that there is no reason for Israel to continue the gas trade with Egypt anyway, as the supply coming from there will be perpetually “unstable.”

“They really don’t have the gas to sell because they subsidize gas domestically and natural gas consumption in Egypt is very popular and on the rise.

There is progressively less and less gas for exports and there are times like last summer, which contributes to the mood of government,” she said, citing domestic power outages last summer due to the amount of gas necessary for LNG exports.

“The gas is just so cheap at home that this becomes very wasteful,” Shaffer added.

“Long-term the supply from Egypt is unstable.”


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