Egypt is mulling prospects for an eastern Mediterranean gas grid as its gas reserves continue to grow.
With new discoveries of gas disclosed seemingly every week, Egypt cannot but consider its export prospects.
On one hand, state-owned Egyptian General Petroleum Co. (EGPC) signed a memorandum of understanding in November 1996 with Amoco Corp. and Turkey's Botas for the purchase of 350 bcf/year of liquefied natural gas from a terminal planned for the northern Egyptian coast. Amoco would use the gas from its fields on the Nile delta, which it estimates will eventually prove to total about 20 tcf of reserves.
On the other hand, EGPC, BG plc, and Agip SpA-the other main operator on the Nile delta-have been in talks with Israel to promote the so-called Peace pipeline, which would extend through northern Sinai and into Gaza and Israel and possibly further north to Syria and Turkey.
Given the precarious state of relations between Israel and its Arab neighbors at present, the latter project seems more like a pipedream. Israel is seeking contracts for 91 bcf/year of gas by 2000, rising to 322 bcf in 2025. Israel has therefore signed its own memorandum with Botas for a subsea pipeline, giving rise to speculation of triangular trades of Egyptian gas.
Egyptian exports
The questions being asked about Egyptian gas exports to Israel seem to begin with when and how, rather than if.
One possibility discussed is to build the Peace pipeline offshore along the coast of Israel and on to Turkey. The gas would be sold to the pipeline owners at a rate of about 350 bcf/year, probably with majority Turkish interest. The public in Egypt and the Arab world at large would be reassured that Egyptian gas is being sold to Turkey.
On the way, however, a spur could extend into Israel that could be used to supply both Israel and the Palestinian Authority areas. The same face-saving outcome could be achieved with selling LNG from the planned Egyptian terminal to Turkey, which would then resell it to Israel via an LNG regasification terminal near Haifa.
The Israelis seem to value the extra flexibility-and therefore increased security of supply-that a regasification terminal and diversified gas sources provide.
Talks under way
Intense negotiations concerning the timing and pricing of gas purchases are under way between EGPC and the equity producers, especially Amoco, Agip, Repsol SA, and Royal Dutch/ Shell Group.
The Egyptian Ministry of Petroleum signals reluctance against exports, claiming that gas should be used at home to substitute for declining oil production, and demanding a high export price of $3-4/MMBTU. This might be regarded as jostling for position in the negotiations.
Under existing production-sharing agreements, EGPC is committed to buy gas from the producers at roughly 85% of the oil-equivalent price. Its marketed gas production has tripled in the last decade, reaching 437.5 bcf in 1996 and is bound to increase to more than 700 bcf by 2000.
For the first time, Egypt has invited tenders for an independent electricity producer to operate a 600-MW gas-fired power station at Sidi Kereir, to be awarded later this year.
Nevertheless, with the new large discoveries, it becomes increasingly clear that the Egyptian government cannot honor the purchasing commitments, and an export outlet has to be found.
Palestine power
Confidence in the go-ahead for Egyptian exports is underscored by current negotiations of the Palestinian Electricity Authority (PEA) with three potential investors to build and operate a 215-MW combined-cycle power plant in the northern part of the Gaza Strip to meet forecast demand for the next 20 years.
The new power station is to run on gas oil initially, awaiting a decision on the supply of gas. It is expected that a contract will be awarded by this fall.
Current electricity demand in Gaza is only 100 MW, and the PEA wants to sell the excess capacity either to Israel or the West Bank.
The Palestinian authorities are striving for energy independence, because the Israelis now can use control over power supply to exert pressure on the Palestinian self-rule areas.
Buying electricity from Egypt would involve considerable extra investment in transmission, both on the Egyptian side of the border and in Gaza itself, because existing transmission and distribution infrastructure is concentrated in the northern part of Gaza.
Israel and its occupied territories are the most obvious market for Egyptian gas.
The resulting impression is that economic rationale might win over political considerations, an unusual occurrence in the region.
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