In this paper we will discuss the story of gas in all its details from beginning to end
Will Egypt actually import Israeli gas?
What is the reality of the Convention?
What advantages does Egypt have?
Who are the biggest affected by Egypt in the gas market?
What are the latest developments, expansion and reactions?
What are the gas transportation solutions for Europe and who are the competitors of Egypt?
What is the vision of the largest research centers and the global economic community?
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The real name of the agreement is not "Egypt imports gas from Israel", but "Israel rents or uses Egyptian infrastructure to liquefy Israeli gas and transfer it to its customers in Europe for related fees".
Egypt is the only country in the Eastern Mediterranean with gas liquefaction infrastructure, Gas cannot be stored when extracted, it must be consumed directly by transporting it to the consumer market, and for Gas to be transported there are two options, either through established pipelines between the fields of the producing state and the consuming state, or to be transported via Sea freight.
In order to be shipped in vessels it must be liquefied and Egypt is the only country that has the potential for liquefaction in the eastern Mediterranean. This is why Egypt is designated as a center for trading, marketing and distribution of LNG on average or the Mediterranean Energy Hub.
This infrastructure is considered a national wealth, consisting of two stations in Adko and Damietta, worth more than $20 billion, equivalent to almost more than half of the Egyptian cash reserves. In July 2017, Egypt celebrated paying the last installment of the loan that financed the construction. The government owns both 20% and 24% shares respectively, the remaining shares are owned by foreign partners such as Shell and BP and Wayne.
Can neighboring countries build these factories now? Not quite feasible, due to the high cost involved and the long time needed for its construction, and therefore useless because gas needs to be extracted now and as gas cannot be stored as oil, it is practical for these countries to boost their sales via direct utilization of the Egyptian stations.
It is natural for this agreement to provoke Qatar and Turkey and their media to attack Egypt because it is no longer political differences, but a "legitimate" economic move, that affects especially the Turkish gas market and reduce its status and quotas.
That was clear when we followed the latest Turkish threat to Cyprus and Greece. The Economist last August wrote about what she expected today, that Israel will use Egypt's capabilities in liquefaction and Egypt will benefit from this situation by having a competitive advantage over others.
It is clear with Zohr, that Egypt will not need Israeli gas and with current production, the current self-sufficiency plans 2019/2020 are on track.
Egypt will gain two kinds of profits as a result of these developments. First the Financial gains for liquifying Natural Gas for Cyprus and Israel and re-exporting it to their customers. Second the moral gain of being the energy hub in the region for supply gas to Europe and the world.
An unprecedented Egyptian military move Following the announcement of the $15 billion deal during only 24 hours, Egypt moved its naval pieces towards ZOHR field. In the statement, the armed forces did not describe the move with routine or scheduled maneuvers or exercises, but explicitly said: "Maritime operations to protect our economic interests around the field ZOHR against any potential hostilities". This move explicitly reflects the seriousness of the state in safeguarding its economic resources.
Why Turkey's anger? Turkey was aspiring to be the transit / intermediary between the producer and the consumer, the producer is the Eastern Mediterranean countries, the owner of the gas and the consumer is Europe and Russia, this was supposed to be done by building a pipeline between the producers fields and through Turkey then directly to gas importers/ consumers, but the emergence of the Egyptian solution for liquefaction and transport through ships, destroys the Turkish dream, and sets Egypt on a fast track towards immediate operation as the Mediterranean hub.
Poland announced that the country is considering using Israeli gas, which will be liquefied in Egypt. According to Piotr Wozniak, head of the Polish state Gas Company "Poland was dependent on Russian gas but intends to diversify sources”. This marks an important statement of evidence that the world is hungry for the region's gas that has a large consumers market.
On the other hand, Cyprus is about to liquefy its natural gas in Egypt’s plants, and we can reach an agreement in the coming weeks," Energy Minister Georgios Lakotripis said in a telephone interview from Nicosia with Bloomberg. With Cyprus and Israel as our first clients on board, Egypt's dream of an energy center has become a reality.
What benefits Egypt?
The first benefit is selling LNG from Egypt directly, the second, liquefying gas on-behalf of Cyprus and Israel for re-exporting it to Poland or any other customer in Europe via the designated vessels.
On the other hand, it is to be noted that the Egyptian-Greek Cypriot alliance is planning to establish a pipeline between the Cyprus and Greece fields for direct delivery to the Egyptian facilities, which alongside with the Egyptian-Israeli pipeline will guarantee maximum returns, utilized by Egypt’s competitive advantage the Suez Canal for direct shipping to the various destinations.
India, South Korea and Southeast Asia are among the potential customers for the Eastern Mediterranean gas. The Suez Canal is the best navigational lane in front of Cyprus, Greece and Israel in the event they target the Asian market. The producing countries can liquefy their gas at the Egyptian facilities and then transport it through the Suez Canal to consumers in Asia, this route saves about 6800 miles compared to other competing roads
Besides Turkey, those affected by Egypt's transformation into an energy center:
Qatar is the country most affected by the Mediterranean gas boom and Egypt’s energy hub, after Turkey, as Qatar holds 15% of the market of liquefied natural gas exports around the world and one third of its reserves. Following the chaos after the January 2011 revolution, terrorists have persisted on bombing the gas pipelines, connecting Egypt with Israel, in Sinai until the line was badly damaged and shipments stopped, the agreement collapsed and Egypt was fined heavily thereafter. Qatar took advantage of this and offered Israel supplying gas as an alternative to the disruption of shipments from Egypt.
USA, has been targeting the European market for years, and Europe is very interested in diversifying its own energy sources, yet, the price of liquefied gas coming from the Mediterranean energy hub can compete with its US counterpart.
Algeria has contracts with southern Europe to supply gas, yet there contract is facing a state of uncertainty because it is not renewed so far and it ends in 2020.
Finally, Norway is one of the most important sources of gas into Europe, but production in the north is decreasing continuously, prompting Europe to seek alternatives before facing an energy crisis due to the declining supply of Norwegian gas.
On the other hand, it is important to note that the Russian liquefied gas price is competitive due its low price and the infrastructure that has been established for years to supply Europe, yet after the crisis in Ukraine, Crimea and instability in Eastern Europe and further more the intensification of the US-Russian conflict in this region. Europe has therefore developed a growing desire to diversify its energy sources.
Russia realized that and Rosneft moved into the region and acquired 30 percent of ENI's stake in ZOHR field to maintain its stake via the dynamic Mediterranean hub.
In the next map, we look at the Russian pipelines that feed Europe
Do foreign partners own the whole field and Egypt has nothing?
Egypt owns 39% of the field and the contract meets international standards in the division of ownership between the State and the foreign company. ENI held 61% of the field, thereafter ENI sold 10% to the British Petroleum company (BP) and 30% to Rosneft, accordingly, while the share of Egypt remained as it is at 39%
Vision of the ECFR Research Center
The Council of European External Relations, based in London and mainly concerned with the affairs of the European Union is ranked 15th in the list of the world's most powerful research centers outside the United States on the 2017 list.
In a research paper entitled “Pipelines and Pipedreams: How the EU can support a regional gas hub in the eastern Mediterranean" dated 21 April 2017, prepared by Tareq Baconi
The paper is very lengthy and we summarize it in the following points:
• *Yes, Egypt is the only country in the region where we can rely on its potential for liquefaction and transportation, but it is not so easy
*Egypt needs major economic reforms and deep (note that the paper began work in late 2016 and was published in April 2017, prior to Egypt’s economic reform implementation)
*Egypt needs major reform in the energy sector and the gas market
• The Egyptian administration should maintain political stability and not abandon the intentions of economic reform under any pretext. This reform will help the success of the regional energy center based in Egypt
• They expressed their fear of the effect of lifting support on the stability and high probability of popular unrest (which has not happened so far since the issuance of this paper)
They pointed out that the huge investment volume of ENI and BP in the Egyptian fields, means that Egypt has very promising opportunities.
• Unemployment, inflation, debt, recession ... are all indicators that must be worked on (note that these indicators have all moved positively over the past 12-18 months)
Unemployment fell from 12.4% to 11.3%
Growth rose from 3.7% to 5.2%
Debt fell from 96.7% to 91.2%
Inflation fell from 22% to 17%
• Egypt will become a regional energy hub that will provide the country with substantial revenues that will allow the reduction of public debt and the strengthening of government spending, but depends on the ability of the Egyptian president to carry out the necessary reforms and continue them to ensure sustainable and long-term growth for the Egyptian economy.
• Europe is not only the target customer, Turkey and Asia are also targeting gas coming from Egyptian liquefaction plants
• The World Bank and various influential international organizations have also supported the Egyptian hub solution (liquefaction and transfer of gas) instead of pipelines from the gas fields to Europe or Turkey or any country for its large cost, security and political risks and long-time needed for its implementation.
• The Center recommended to the European Union the need to support the Egyptian solution EGYPT OPTION, please note the following table:
Egypt regional hub
Green color means excellent position
Yellow color means good posture
Red color means degraded position
The criteria are divided as follows:
Technical issues (i.e., feasibility)
Political issues (i.e., the extent of the risks and the degree of stability in the solution state)
The solutions are as follows:
2 solutions in Cyprus through the establishment of Cyprus filtering plants on land or in water, government or joint factories
Solution in Israel via a pipeline between its fields and Turkey through the waters of Cyprus
Solution in Greece by pipeline between Cyprus and Israel to Greece and Italy
3 solutions in Egypt
The first is the export of Egyptian gas only through the liquefaction plants via a pipeline between the fields of Egypt and the factories
The second is a pipeline between the Egyptian liquefaction plants and the fields of Cyprus and Egypt
The third is that Egypt is a full-fledged regional energy center that brings together Cyprus and Israel with pipelines between its fields that transport gas to Egyptian liquefaction plants
Note that the aim of all these solutions and ideas is to reach the best way to transport gas to Europe and what is the cheapest, best and most reliable way
Egypt is the best solution ever where the country received two marks in yellow and a green sign and there is no red mark
The red mark flattens the whole solution even if the remaining two tags are green
In the following map, we will examine the Egyptian solution and its nature
The second best solution is EAST-MED pipelines, which is currently being studied and its feasibility study has not yet released, yet it is to set up pipelines between Cyprus and Israel to link their fields to Greece, Italy and Europe directly. This solution, if we started today, will be completed after 8 years and needs $7 billion, even if this project is approved, the gas cannot be stored and await all this period.
In the following map we see the nature of this solution
In the end, they did not find - governments, research centers, exploration companies and the whole market any option that is better than the Egyptian solution as a regional center for energy in which regional gas is transformed and transferred to Europe,
In the next map we see the Egyptian solution
Egypt is characterized by zero technical problems because the factories already exist and operate and are characterized by high quality and technologies, Egypt has no problem in the commercial aspect of the construction of a pipeline and Egypt does not have a problem in the political arena and in my opinion Egypt deserves to be green in this standard.
In conclusion Egypt is gradually becoming a major economic power in the Mediterranean, Middle East and North Africa region, linked to the success of the first phase of economic reforms this success has been boosted by the reduction of interest as discussed in the previous article, with high growth and lower unemployment indicators at their best levels in years, promising a much better future along with sustainable growth.