Egypt, Israel seek court action over gas contract

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, July 22 -- Shareholders in East Mediterranean Gas are seeking more than $8 billion in damages from the Egyptian government due to repeated attacks on a pipeline that have disrupted contracted supplies of natural gas to Israel.

Nimrod Novik, an Israeli board member of EMG, said the blasts have led to financial losses, caused serious problems in the Israeli energy market and "undermined Egypt's reputation as a reliable supplier."

Novik said, EMG reached a deal with Egypt 2 years ago that offered what he said were generous prices for Egyptian gas.

"Given that even this far-reaching price concession has not secured reliability of supply, the shareholders were left with no alternative but to seek protection” from the International Center for the Settlement of Investment Disputes, he said.

As part of the legal procedure, initial consultations among the parties are expected to take place in the coming weeks. But if no settlement emerges, the case would then go before the center’s judges.

However, Egypt’s Minister of Petroleum Abdallah Ghorab is threatening that Egypt will seek the cancellation of the current gas supply agreement with Israel and will demand a new price from Israel.

Egypt is reportedly preparing a request of its own to the International Centre for the Settlement of Investment Disputes, demanding that EMG raise the value of the gas agreement to $10 billion.

Earlier, however, Israel said the price it pays for gas is on par with international standards and that it will not renegotiate the price, which was already adjusted upward about a year ago.

Israeli energy officials say the Egyptian government receives more than $3/MMbtu from Israel.

"EMG's price is higher than that of any other Egyptian export venue, is better than other regional exporters receive and is in line with international prices," Novik said.

Meanwhile, a source cited by Egypt’s Youm 7 newspaper threatened that the attacks on the gas pipeline, which stretches to Ashqelon in Israel from Al Arish in the Sinai, will continue unless implementation of the agreement in its present format is halted.
The most recent bombing earlier this month was the fourth in 6 months, cutting off badly needed supplies during the hot summer months when Israelis' increased use of air conditioning sends electricity demand off the charts (OGJ Online, July 18, 2011).

EMG is owned by Egyptian businessman Hussain Salem, Egypt Natural Gas Co., Thailand's PTT PCL, EGI Chairman Sam Zell, and Yosef Maiman through Ampal-American Israel Corp. and his private company Merhav Ltd.

Contact Eric Watkins at hippalus@yahoo.com.

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