Stratfor
Summary
During a meeting between the Israeli and Qatari prime ministers May 8 in London, Doha reportedly offered to sell liquefied natural gas to Israel. The rumored offer comes as Egypt, which supplies Israel with about 40 percent of its natural gas needs, is showing an intention to renegotiate the controversial natural gas deal with Israel that has provided energy to the country at below-market rates. A partnership with Qatar may offer some longer term potential for Israel to reduce its dependence on Egyptian energy, but due to infrastructure limitations, Israel likely will not have any choice but to pay a higher price to Cairo in the interim. Analysis
Israeli Prime Minister Benjamin Netanyahu held a secret meeting with Qatari Prime Minister Sheikh Hamad bin Jassim bin Jabor al-Thani in London on May 8, Ahram Online reported, citing Israel Radio. During the meeting, the Qatari prime minister reportedly expressed Qatar’s willingness to supply Israel with liquefied natural gas (LNG). Israel is becoming increasingly concerned about its energy security amid Egyptian calls to renegotiate the terms of a natural gas deal between the two countries, as well as sporadic attacks on the Egyptian-Israeli natural gas pipeline that have caused two temporary disruptions in delivery since February.
Though Qatar’s offer does have long-term potential to make Israel less dependent on Egyptian energy supplies, in the near term Israel will have little choice but to accede to Cairo’s demands on changes to the natural gas deal.
Egypt currently supplies 40 percent of Israel’s natural gas as part of an agreement signed in 2005. The delivery of natural gas started in May 2008 through an underwater pipeline from the Egyptian city of El Arish on the northern Mediterranean coast to the Israeli port of Ashkelon. The specifics of the deal have long remained unknown, though an addendum was signed to it in 2009 increasing the amount of natural gas exported from 1.7 billion cubic meters (bcm) to 2.1 bcm.
The deal has long been unpopular with the Egyptian public due to the preferential terms under which it sold natural gas to Israel at below-market prices. Following the ouster of Egyptian President Hosni Mubarak, however, the interim government and Supreme Council of the Armed Forces are pushing for a renegotiation of the agreement. Former Oil Minister Sameh Fahmy and five other former officials were detained April 21 for an investigation into the contract. Unconfirmed leaks from the Egyptian Interior Ministry in March indicated that Mubarak’s sons Gamal and Alaa, as well as the former president himself, personally benefited from the deal, which would not be unusual given the nature of the Mubarak regime and Gamal’s extensive ties to businessmen controlling all sectors of the Egyptian economy. By pushing for a revision of the natural gas deal, the Egyptian military aims to both increase its revenue to help pay Egypt’s budget deficit and debt, which could make the Egyptian economy even more vulnerable while it is trying to recover from the ongoing political turmoil, and to legitimize itself in the eyes of the Egyptian public by distancing itself from the former regime. To this end, unnamed Egyptian officials told Egyptian newspaper Al-Masry Al-Youm on May 5 that negotiations with Israel would start by the end of May with the aim of doubling the current price level.
Besides Egyptian demands to revise the current deal, Israeli dependence on Egyptian natural gas is also increasingly questioned due to a series of attacks on the pipeline that twice led to temporary disruptions in supply. The first attack occurred Feb. 5 during the unrest that resulted in Mubarak’s overthrow Feb. 11. Another attempt at sabotage was reportedly thwarted March 27. A second attack succeeded April 27, prompting Israeli officials, such as Israeli National Infrastructure Minister Uzi Landau, to speak out about Israel’s need to find alternative resources to lessen its dependence on Egypt, including accelerating the development of the recently discovered Tamar and Leviathan offshore natural gas fields in the eastern Mediterranean Sea. However, Israel is years away from developing those fields. Therefore, the leak about Netanyahu’s meeting with his Qatari counterpart was likely intended to show Egypt that Israel has other options when it comes to natural gas supply. Qatar is the world’s largest LNG exporter. Even though Israel does not have an LNG import station at present, it announced in February that it would build a floating platform off the northern city of Hadera by the end of 2012.
If the project can be completed as planned, Israel could reduce its dependence on Egyptian natural gas by buying LNG from Qatar, which could be found at lower prices on the spot market. Egypt, for its part, would have a number of options for its reserves: It could still supply Jordan and Syria, two destinations of the Arab Gas Pipeline, with natural gas; it could export natural gas to other clients via LNG facilities; and under a deal signed in March 2006, the pipeline will eventually be extended through Syria to Turkey and Iraq, adding more potential markets. Jordan depends on Egyptian natural gas for 80 percent of its electricity production, so Egypt would likely have a destination for any excess production that had previously been purchased by Israel.
This, however, does not mean that both Egypt and Israel intend to cancel the deal altogether. Egypt and Israel are likely to reach a renewed accommodation that could satisfy Egypt’s demands, at least until Israel develops viable natural gas alternatives. But until that point, Israel has no option but to negotiate a new price with Egypt, and Cairo’s newfound inclination to push for such a renegotiation is a sign of the cooler relations between the two states.
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