"Reuters" quotes Egyptian Prime Minister Ahmed Nazif as saying that Egypt has informed Israel that it intends to raise the price of the natural gas it supplies to Israel. The surprising statement comes just two weeks after Egypt began commercial supplies of natural gas to Israel.
Ministry of National Infrastructures director general Hezi Kugler and Israel Electric Corporation (IEC) chiefs recently held talks with the Egyptians on raising the quantities of gas supplied to the utility. The Egyptians made it clear during the talks that they intended to raise prices substantially. It is not yet clear whether this will affect the existing contract between IEC and Egypt. IEC chairman Moti Friedman was due to leave for Egypt today, but his trip could be postponed for a few days.
In 2005, IEC signed an agreement with Egypt's Eastern Mediterranean Gas Company (EMG) , in which Joseph (Yossi) Maiman is a partner, for the purchase of 1.7 billion cubic meters of gas a year for 15-20 years, with an option to increase the quantity by 25%. The contract price, $2.75 per British thermal unit (BTU), was exceptionally low.
The commercial agreement is anchored by a political agreement between the governments of Israel and Egypt. However, since the signing of the agreement, global natural gas prices have risen to $6-7 per BTU, following increases in prices of energy and oil.
The Egyptian Prime Minister said his government was in talks with Israel on gas prices. "We've managed to amend the prices of natural gas to some of the countries that we supply such as Spain and France, and we're also holding talks with Israel," he added.
The agreement between the governments of Israel and Egypt, through EMG, calls for the supply of up to 7 billion cubic meters of gas a year for a 20-year period. The Egyptian Prime Minister's statement follows scathing criticism and pressure from the opposition in Egypt, which alleges that the prices for the deal with Israel are exceptionally low, at a time when domestic demand for natural gas in Egypt is on the rise.
Energy sources believe that some of the statements coming out of Egypt are the result of the internal conflict there. They expressed their hope that the statements related to future agreements between EMG and private electricity producers, and not the agreement that has already been signed with IEC. "One can't expect the low prices for gas in 2000 to be repeated in 2008. We have to take into account that all global energy prices have been rising as the result of the spike in oil prices," they said.
Israel's economy will face serious difficulties in the event that the Egyptians decide to put up natural gas prices, since EMG is virtually the sole supplier, in the absence of an agreement with BG Group (NYSE: BRG; LSE: BG) on the purchase of gas from its field off the Gaza coast, and with Yam Tethys having already sold most of the gas reserves it owns. IEC itself needs extra quantities of gas from Egypt, to meet the terms of the emergency program for ramping up electricity production capacity by 2010.
EMG is jointly owned by Egyptian businessman Hussein Salem (28%), Thai gas company PTT Public Company Ltd.(25%), the Egyptian National Gas Company (10%), and Maiman through Ampal - American Israel Corporation (Nasdaq: AMPL) and Merhav MNF.
Merhav MNF declined to comment on the report. A spokesperson for IEC said, "IEC has a signed agreement with EMG for the supply of natural gas from Egypt. We do not believe the statements refer to the agreement with us."
Published by Globes [online], Israel business news - www.globes-online.com - on May 22, 2008
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