The Case against Egypt Selling Gas to Israel

July 4th, 2011

For what must be the third or fourth time since the Egyptian revolution began on January 25, the Sinai gas pipeline that takes Egyptian gas to Israel has been attacked. These attacks are not particularly dramatic, but are enough of a bother that it takes several weeks to restore the flow of gas to Israel — and often Jordan, which is affected by the pipeline. The people behind the attacks are thought to be Sinai-based Islamists who oppose the sale of gas to Israel, but we don’t really know for sure. The attack took place only 60km east of the Suez Canal, and it could very well be people from the Nile Valley carrying out the attacks — and they don’t have to be Islamists, either, since plenty of other people oppose the gas deal.

Since the revolution, the interim government has reviewed gas prices but thus far everything indicates that the sale of gas will continue. From what I’ve been able to gather (and I’d like to write something longer on this one day), Egypt was selling the gas to Eastern Mediterranean Gas (EMG), the private firm that then sold the gas to the Israeli National Electricity Company, at around $3 per mbtu (that’s million British thermal units — the standard measurement for these things). EMG then sold it to the Israelis for around $4.5 per mbtu, pocketing a 50% profit margin for no more than the transaction costs and some of the infrastructure between the two countries. The market price for gas (which is not as fungible as oil since it tends to rely on pipeline infrastructure unless shipped as LNG) is currently around $4.40 for futures in North America, but spot markets in recent years passed the $10 per mbtu mark. Either way, there is no doubt that the price of the gas sold by Egypt to EMG was well below market prices, and that the company made an easy profit without investment of its own (I’ll leave the issue of whether EMG sold the gas to Israel at a fair price aside.)

See on-line at: http://www.arabnewsblog.net/2011/07/04/the-case-against-egypt-selling-gas-to-israel/