The Egyptian decision to officially cut off natural gas supplies to Israel is
far from unexpected and will presumably have very little effect on the Israeli
energy market, experts agreed on Monday.
“I think this formalizes a
situation which has already existed for a year,” Prof. Eytan Sheshinski, of the
Hebrew University’s economics department, told The Jerusalem Post on
Monday. “Israel is already adjusted to doing without the Egyptian
Saboteurs have blown up the Sinai gas pipeline that brings natural
gas from Egypt to both Israel and Jordan – as well as Lebanon and Syria via
Jordan – 14 times since February 2011. This has caused the supplies to be
inconsistent throughout the recent past, flowing on and off and delivering only
very small quantities of the product during the time, Sheshinski
“The supplies have been so erratic that it’s not going to make
so much of a difference,” agreed Prof. Brenda Shaffer, an expert on energy
policy and management in the School of Political Science at the University of
“It was pretty inevitable,” Shaffer added, calling the official
cut more significant “on a symbolic level.”
While the Egyptian decision
“does not make much of a difference in reality,” it does bring to light some
already existent problems in Israel – namely, the narrow window that exists
between the depletion of the existing Yam Tethys gas supply and the flow of the
Tamar reservoir, Sheshinski explained.
The estimated availability date of
April 2013 for oil from the Tamar gas field off the coast of Israel is quite
reasonable, but does not help the fact that there may be some electricity
shortages this coming summer, he added.
“Overall, looking forward to a
year from now, if Tamar will start flowing then we will be on a steady course
for electricity generation and other uses,” Sheshinski said.
having an Egyptian supply, however, Israelis are losing out on an economic
level, as the market will suffer from a natural gas monopoly without a second
competitor, he argued. In order to ensure that domestic purchasing and
availability of gas remains fair, the government must place constraints on local
prices as well as the export quantities, according to Sheshinski.
supervision of the monopoly becomes a very important issue – in other words the
supervision of the pricing, so that the interest of the public will be guarded,”
Sheshinski had chaired the 2010 Sheshinski Committee, which had
recommended that the government raise the state’s share of oil and gas revenues
from 33 percent to 52- 62%, depending on the individual case. The committee
recommendations became law in March 2011.
“[Gas providers] would like to
have a free hand to export as much as they can. But on the other hand the
country wants some strategic insurance for adequate supplies,” Sheshinski said.
“While the situation has not changed dramatically it is really important to
consider these constraints.”
While Shaffer agreed that it is the
government’s responsibility to set necessary constraints to ensure a regular gas
supply to its population, she said she did not believe that having an Egyptian
supply would affect an Israeli gas monopoly.
“Most gas markets in the
world are not competitive markets,” Shaffer said. “The chance to have a really
competitive market in Israel when there’s one consumer and one provider dressed
up in different outfits is almost impossible.”
In Europe, for example,
almost no countries have competitive natural gas markets, and usually have
long-term contracts with one or two suppliers – Norwegian Gas, Russian Gas and/or
Algerian Gas, according to Shaffer.
“Gas is a utility, not a commodity
and it’s the government’s job to make sure that people have access to regular
gas and electricity supplies at a reasonable price. The market doesn’t create
the conditions for security of supply,” Shaffer said. “It’s easy to blame the
Egyptians here but what about the Israeli government? They let the private
market do these deals and they were obviously unsustainable.”
government, she argued, must now take care of the country’s gas security, create
long-term investments and infrastructure, including redundancy, backup and
storage. Even with no competition, at this point the gas providers cannot
charge whatever price they want domestically, particularly because there is
currently no export infrastructure in place and they have no one else to sell to
besides the Israeli consumer, according to Shaffer.
“The consumers and
producers in Israel are linked in a marriage,” she said.
whether Israelis benefit from receiving Egyptian gas, Sheshinski felt that
Egyptians forego a financial opportunity by not selling gas to
“It’s in the economic interest of Egypt to continue to continue
exporting gas to Israel,” he said. “What they claim is the initial deal was
unfavorable to Egypt because corruption was involved.”
As of now, it is
difficult to tell if this is a commercial or political dispute, and one way to
determine this will be to watch whether supplies continue to Jordan and whether
any renegotiations with Israel over prices occur, according
“If we see that they are not interested in any renegotiations
about the deal, that will at least be some indication that there are broader
issues involved,” he said, Ultimately, however, it is impossible to predict
whether Egyptian officials will decide to renegotiate the terms and start up the
Israeli supply once again, but this most certainly would not occur before next
year’s presidential elections, Sheshinski explained.
“The only thing that
I got the distinct impression was that in Egypt all the political parties and
politicians came out against the gas deal,” he added. “It’s about name – it’s
something that has a negative image in the Egyptian streets.”
Shaffer’s opinion, on the other hand, Egyptians have absolutely no benefit from
exporting gas to Israel. Today, Egypt produces about 65 billion cubic meters
(BCM) of gas per year, 45 of which are consumed domestically and 20 of which
have gone to Jordanian, Israeli and LNG (liquefied natural gas) facility
exports, according to Shaffer.
Of that 20 BCM, about 70% of the gas
should ideally go to the LNG facility, as LNG facilities are quite expensive to
construct and therefore merit maximal use, despite the fact that pipeline sales
usually reap higher prices.
This, she explained, should be a lesson for
Israel as it considers constructing an LNG export facility of its
“Once you have the facility in place it’s very difficult to keep the
numbers down – producers will always want to use the highest capacity possible,”
With the idea that Egypt should be using 70% of its 20 BCM
gas for export in LNG, it is only left with about 6 BCM for pipeline
“[Egypt] can’t meet its commitments to Israel,” Shaffer
In order to do so, the country would have to tap what should be
domestic supplies, exporting natural gas at the expense of its own public – a
path that governments generally do not take but that contributed to the Egyptian
summer blackouts in 2010, under Mubarak, according to Shaffer.
saying that those blackouts caused the fall, but certainly when you have six
weeks of blackouts it raises the public anger,” she said, calling the blackouts
a sign of failed governance. “This current regime is so unstable in Egypt that I
don’t think it could allow itself the blackouts, certainly not if the gas was
exported to Israel.”