New secular regime in Egypt not expected to harm exports to Israel, but Islamic coup may create economic mayhem

Tani Goldstein

The violent uprising in Egypt has not stopped the delivery of gas to Israel . So far the Egyptian and Israeli governments have not conveyed any message hinting the supply will stop, despite recent events and the fact that the Egyptian-Israeli gas line passes through northern Sinai where the riots are taking place.

Egypt also supplies gas to Jordan and Syria, as well as gas tankers to Europe. The gas delivery to these countries was uninterrupted as well.
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The gas plants in the country are well secured and kept far away from the riot zones. Even if these facilities will be damaged, the Israeli electrical company has reserves to last until the plants are repaired.

Egypt supplies around 40% of Israel’s gas consumption. The rest originates from a reservoir near Ashdod owned by Israel and the United States. If the Egyptian gas delivery continues as planned, the reservoir is expected to run out only by 2014.

Starting from 2014, Israel’s electric company and private entrepreneurs plan to begin purchasing a mix of Egyptian gas as well as gas from Tamar reservoir, owned by American Noble Energy gas company and Israeli businessman Yitzhak Tshuva.

Importing Egyptian gas is part of an economic benefits package signed by Israel and Egypt, which includes the Qualifying Industrial Zones (QIZ) Agreement as well as the gas agreement. The package requires that Egypt buy equipment from Israeli companies and in return be duty free from US products.

Egypt now earns nearly $2 billion annually and is expected to earn another billion from gas delivery to Israel in the upcoming years. This is a lot of money for the struggling Egyptian market, therefor senior energy officials estimate that any secular Egyptian regime will continue to supply Israel with gas, unless the Society of the Muslim Brothers come to power.

Worst case scenario

The most extreme scenario for the Israeli gas economy will play out if an Islamic regime will gain control in Egypt. This means the gas delivery will cease to exist. If this were to happen, the electric company and private entrepreneurs will be forces to purchase gas from Israeli companies, but mainly from Tshuva.

If the Egyptian supply will stopp, the reservoir gas in Israel will last only until 2012, which means that the Israel market will have to function without natural gas for nearly a year until the Tamar drilling begins in 2014.

The electric company’s power plants and other privately owned facilities are prepared for gas shortages. The issue is that diesel oil is far more expensive than gas and very harmful to the environment. The transformation from gas to diesel oil will also take some time.

An absence of natural gas is expected to hurt the economy either way, because if Israeli gas suppliers become a monopoly they might raise the prices above market value.

The electric company, EMG company which supplies gas from Egypt to Israel and is partly owned by Israeli businessman Yossi Maiman, the Delek Group controlled by Tshuva and the Ofer brothers’ company OPC – are all planning on building a private power plant. They declined to comment on the issue.,7340,L-4020922,00.html