Egypt: Israeli gas prices could rise 70%

The Egyptian government might raise the price of the natural gas it sells to Israel's gas supplier EMG by 70%, Egyptian Minister of Petroleum and Mineral Resources Sameh Fahmi suggested in an interview with newspaper Al-Ahram this weekend.

Fahmi refused to tell the Cairo daily how much EMG, which exports the Egyptian gas to Israel, is paying. He said, however: "There is no fixed price, but foreign gas exportation companies in Egypt agreed that the price should be adjusted to reach between $2.5 and $2.65 per million British thermal units." It is thought that EMG now pays $1.5 per million BTU.

Such a change would increase the price the Israel Electric Corporation pays for its gas by between 35% and 40%, at least. In 2001, EMG won the tender to supply the IEC at a price of $2.75 per million BTU, and EMG will certainly want to keep its profit margin stable.

In the past the IEC has refused to renegotiate the contract with EMG, and previous contacts have only discussed raising the price for additional quantities beyond the amounts in the current contract. Now that Israeli might buy gas from the Tamar-1 field, which recently made a big discovery, it may not need additional gas from EMG.

Egypt and EMG signed a deal updating gas prices last week after six months of negotiations, as Egypt wanted to increase prices, which have risen greatly since the original agreement in 2000. The opposition in Egypt has harshly attacked the government for selling natural gas to Israel for below-market prices, and even taken the issue to court. A month ago the Egyptian Supreme Court ruled in favor of continued sales to Israel.

Israel's new National Infrastructure Minister, whoever that may be, will be allowed to require the partners in the Tamar-1 gas discovery - or in any other gas or oil well in Israel - to sell all its production to Israel. The state can also control the rate of production as it sees fit, according to the Oil Law of 1952.

"The minister is allowed, after consulting with the Oil Board, to require the owners of the holdings to first provide, at market prices, from the oil they produce in Israel and from oil products they produce from it, the quantity of oil and oil products the minister thinks is needed for Israeli consumption," states section 33 of the law, which also applies to gas.

The law does have some limitations on the minister's powers, but in cases of "national security or to prevent waste or to prevent dishonesty toward another [rights] holder," the minister is allowed overrule the limitations.

The partners in Tamar-1 have hinted in the past that their production schedule and investments may be cut back from the maximum if local demand is too low.

Fahmi emphasized in the interview that it is not the Egyptian government that is selling the gas to Israel, but a private company, EMG.