Egypt and Turkey have recently agreed to jointly establish the "TIR GAZ" company. This company will be responsible for exporting Egyptian gas to Europe via a pipeline which will go from Egypt to Jordan, and then through Syria to Turkey. This recent deal raises again the discussion concerning Egypt's natural gas export destinations.
Following significant discoveries of oil reserves in the early 1990s, the Egyptian Government declared in 1999 that the nation's reserves (estimated at some 65 trillion cubic feet today) surpass the local needs, and called on foreign companies operating in its territory to locate export destinations.
Ever since natural gas production in Egypt grew by more than 75 percent in the last five years. In 2004, natural gas became the nation's No. 1 source of energy. Currently, approximately 84 percent of Egypt's electricity needs are supplied by power stations that run on natural gas.
Viewing Liquefying Natural Gas (LNG) projects as the most efficient means of attracting foreign investment, the Egyptian government has encouraged foreign companies operating in the country to expedite their completion of LNG export projects. Indeed many leading foreign companies understood the potential of Egypt's natural gas industry and today there are some 50 foreign companies operating in this sector.
The first gas liquefaction plant for export purposes was completed in December 2004 by the Spanish firm, Union Fenosa. The plant, located in Damietta, west of Port Said, is one of the largest worldwide. Its first export shipment to Spain was ready in May 2005, some three months ahead of schedule. The liquefaction and export capacity of this facility - about 7.5 million tons per year of LNG - has already been sold for the next 25 years.
The second gas liquefaction plant was completed in March 2005 by BG and the Malaysian Petronas Company in Idku, east of Alexandria. Its first LNG shipment left the plant in November 2005. The completion and operation of this facility in Idku led Egypt to become the world's sixth largest liquid gas exporter, following Indonesia, Qatar, Malaysia, Algeria and Nigeria).
Criticism
Despite the remarkable developments, some experts criticize Egypt's natural gas policy. Tarek Heggy, former advisor of Shell International Petroleum Companies and Chairman of Shell Companies in Egypt believes that by embarking on these huge LNG projects Egypt made two crucial mistakes.
First, Heggy explained to MenaReport, expensive LNG projects are better suited for large scale gas producers with average reserves of 100 Tcf and more and not to medium sized natural gas producers such as Egypt. The second mistake was choosing Europe as its primary export destination for natural gas. The markets in Western Europe, maintained Heggy, are too far from Egypt and too close to other major eastern European gas producers, thus forcing Egypt to lower prices in order to compete in this market.
Aside from its ambitious LNG projects, Egypt has also been striving to become a regional gas exporter, supplying gas by pipelines to neighboring Jordan and from there to Syria, Lebanon and Turkey, as well as to Israel.
A gas pipeline from Egypt's El Arish to Jordan's Aqaba has already begun commercial operation in July 2003. This pipeline is operated by the Egyptian-Jordanian Eastern Gas Company, EGC, but gas supplies to industrially underdeveloped Jordan have been quite marginal. Furthermore, the small amounts of gas exported to Jordan are also being sold at lower "favorable rates" believed to be around US$1 per 1 million BTU.
Cyril Widdershoven, from Mediterranean Energy Political Risk Consultancy, a leading natural gas analyst and prolific author on the subject, explained to MenaReport that what enabled this "favorable rates" deal between the two countries was first, the backing of various international and regional energy organizations, which subsidized the pipeline building and the whole deal; Second, the fact that Jordan was in fact Egypt's first client and relatively small market; Third, Egypt's aspiration of reaching a regional agreement in which it will supply gas from this pipeline to Jordan until Syria and Turkey.
At any rate, said Widdershoven, the feasibility of this Syrian-Turkish option is highly questionable. The Syrians do not need this gas pipeline and Turkish demand will not support another source of piped gas beyond its import deals with Russia, Iran and Azerbaijan.
Israel
The idea of selling gas to Israel, on the other hand, something which has been under discussion since the mid 1990s, seems much more viable. Israel, claimed Heggy, has always been Egypt's best export destination for its newly discovered natural gas reserves. This is the largest industrialized economy in the region and hence also the largest natural gas consumer in the region in the foreseen future. Furthermore, Israel is close to Egypt, making it much cheaper and simple to sell it the gas by a relatively short pipeline.
Israel, however, explained Heggy, has been reluctant to base its energy supplies on neighboring Egypt and Egypt, on the other hand, has been reluctant to become dependent of Israeli dollars. Eventually, however, in June 2005, a deal was signed between the two sies for the supply of $2.5 billion worth of gas to Israel. The gas would be exported to Israel by the East Mediterranean Gas Company (EMG), an Egyptian-Israeli company, through a pipeline which is to be built and fully operated by the end of 2007.
