A 3.3 billion USD gas deal was signed a couple of days ago between Egypt and Israel, under which Egypt will supply its neighbour with between 12.5 to 16 billion cubic meters of gas over the next 17 to 22 years. (longer report in Arabic here.)
As you may know, this is the outcome of the renegotiation of the terms of the agreement signed in December 2007; the sale price was egregiously below world market prices, causing the ire of an irritable Egyptian public, already uneasy because of the identity of the buyers - it's no secret most Egyptians do not favour deeper economic ties with Israel, even if they're beneficial.
Yet more than a vocal public opinion, it was a lawsuit that nearly got the deal overturned that scared the parties into renegotiation. (the flow of gas, however, was never suspended.)
As one of 80 million owners of the resource in question, I am quite bothered by the opacity of the deal - it is after all a multi-billion dollars deal, and I am somewhat uneasy that the Egyptian press would have to quote its Israeli counterpart for information.
As a concerned citizen I am fully entitled to know:
a) whether this new deal makes economic sense, and
b) who on earth is behind the deal?
From what we can gather, events apparently unfolded as follows:
"EMG", we are told, signed an agreement in early June with the Egyptian government, amending the original December 2007 deal "on repricing at a higher price, as well as periodic price adjustments, and new gas delivery targets".
By the following week, gas flow into Israel had increased to 1.5-1.6 BCM per year.
The Israel Electric Corporation (IEC) however announced, mid-July, that it will "probably not increase the amount of gas it buys from Egypt's EMG".
Despite IEC's declarations, it appears that we're looking at new targets in terms of quantity and duration: according to Business Week, "the Amendment determines that the duration of the gas supply will be for 17 years with an option to Dorad to extend the period for 5 more years. The total contracted gas supply will be between 12.5 BCM to 16 BCM and the total annual amount of income will be between $125 million to $150 million."
Seemingly, we're looking at an increase between 10 and 35% increase of the sale price: the wide margin is due to the fluctuation of prices between peak and off-peak consumption hours. Frankly I'm surprised they factored it in, but I know little about gas contracts...
My understanding is that the price remains well below spot market prices but that's the cost of hedging the fluctuations - having a guaranteed contract at a fixed price. I think I'm relatively satisfied on that side.
(And the fact that the Israelis are trying to find a scapegoat to blame is rather a good sign, too).
b) Who is behind the deal? Who are the players??
--> That will wait for the next post!! (Update: Part two HERE!!) But from what I've been finding, it's pretty damn interesting. :)
As you may know, this is the outcome of the renegotiation of the terms of the agreement signed in December 2007; the sale price was egregiously below world market prices, causing the ire of an irritable Egyptian public, already uneasy because of the identity of the buyers - it's no secret most Egyptians do not favour deeper economic ties with Israel, even if they're beneficial.
Yet more than a vocal public opinion, it was a lawsuit that nearly got the deal overturned that scared the parties into renegotiation. (the flow of gas, however, was never suspended.)
As one of 80 million owners of the resource in question, I am quite bothered by the opacity of the deal - it is after all a multi-billion dollars deal, and I am somewhat uneasy that the Egyptian press would have to quote its Israeli counterpart for information.
As a concerned citizen I am fully entitled to know:
a) whether this new deal makes economic sense, and
b) who on earth is behind the deal?
From what we can gather, events apparently unfolded as follows:
"EMG", we are told, signed an agreement in early June with the Egyptian government, amending the original December 2007 deal "on repricing at a higher price, as well as periodic price adjustments, and new gas delivery targets".
By the following week, gas flow into Israel had increased to 1.5-1.6 BCM per year.
The Israel Electric Corporation (IEC) however announced, mid-July, that it will "probably not increase the amount of gas it buys from Egypt's EMG".
Despite IEC's declarations, it appears that we're looking at new targets in terms of quantity and duration: according to Business Week, "the Amendment determines that the duration of the gas supply will be for 17 years with an option to Dorad to extend the period for 5 more years. The total contracted gas supply will be between 12.5 BCM to 16 BCM and the total annual amount of income will be between $125 million to $150 million."
Seemingly, we're looking at an increase between 10 and 35% increase of the sale price: the wide margin is due to the fluctuation of prices between peak and off-peak consumption hours. Frankly I'm surprised they factored it in, but I know little about gas contracts...
My understanding is that the price remains well below spot market prices but that's the cost of hedging the fluctuations - having a guaranteed contract at a fixed price. I think I'm relatively satisfied on that side.
(And the fact that the Israelis are trying to find a scapegoat to blame is rather a good sign, too).
b) Who is behind the deal? Who are the players??
--> That will wait for the next post!! (Update: Part two HERE!!) But from what I've been finding, it's pretty damn interesting. :)
9 comments:
Why do I think this doesn't mean my gas bill is going down any time soon? (Gas is outrageous already--heating one's home in the winter is almost impossible without going bankrupt...wish I had a fireplace...).
And this may not be The Spot to answer a Twitter question, but yes, people here are openly referring to the TA gay center shooter as a "terrorist" -- usually preceded with an angry scatalogical, profane or F-word-related adjective. It was clearly an act of terrorism.
hey Mohammed,
having spent quite some time on gas sales contracts, I can very honestly say that such contracts are much more complicated than they seem. Their very basic terms consist of very complex set of price formulas - mostly kept confidential- to be able to keep the gas sales price aligned with the market prices of the other competitive fuels. So what is being (re)negotiated is mostly the formula-which varies over time.If any side feels that the formula can't reflect the extreme price shake in the markets, then they choose the review the price at t0. So what drives the price margin is the comparison with the other fuels and the price of the gas in neighboring and also global markets.
Peak and off-peak consumption hours, as far as I am aware, only determines the volume flexibility. Depending on the buyer's end-user profile and many other factors ( as well as the seller's capacity to provide a continuous flow), two sides agree on a certain percentage of flexibility on the agreed volumes. This is probably where the 12,5-16 bcm difference comes from (unless the seller is developing the reserves NOW and not sure of the volumes can be produced and sold in the end).
I don't know much about this new deal, but there should be companies (either state owned or private) which runs the business and takes the charge for the terms mentioned. So, it is worth digging who is signing and selling/buying the gas.
One last thing that confused me..12,5 to 16 bcm gas over next 17 to 22 years...in total? or per annum? I mean, both ways, the figures have deficiencies to me. 12,5 bcm is hell a lot of gas and I suppose Israeli consumption is that high..so it can't be per annum..If it's overall 16 bcm of gas over 17-22 years, we are left with less than 1 bcm per year..which is just a symbolic amount, almost equal to the "test" gas sales from Turkey to Greece. and,from a pure commercial point, I am not sure if such small amount of gas is worth that much noise:) from a political science lover point of view, ooohh yess...let's discuss it!!! :))
Aliyah06 - It's not THAT cold in the winter.. (at second thought, it was snowing when I got to Jerusalem last winter. I take that back. :)
Re: the TA shooting: Thanks for answering.. I'm surprised because seemingly both Israeli and US media have been using 'gunman' instead, with no mention of 'terrorism' anywhere in their coverage. Which is, I'm fairly sure, no coincidence.
lknur, you are absolutely brilliant!
Thank you very much for all the explanations -- I feel so much smarter now. :)
Re: the total quantity: really?? It seems that it's a total of 12.5 --> 16 BCM... I had no idea it sounded so small. In the same time, Israel has barely any production of its own so I'm surprised they'd be interested in buying symbolic quantities.. or, as you say, that the price spread deserve to get that much noise..
As for who signed the deal: the national electricity company on the Israeli side, and a shady consortium on the Egyptian one. I'll put up this article tomorrow or so. :)...
I know nothing about economics or gas contracts so I defer to the expertise of Mohamed and Ilknur--but I know that consumers are concerned about gas, its source, and its cost in a big way. In Jerusalem (which can be bitterly cold and was for months last winter), families struggle to pay gas bills that run as high as 3000 NIS per month (and that's only having it on in the afternoon after the children are home from school, until bed-time). No one likes the gas companies and a favorite past-time is having your Vaad hunt for a better deal by playing one company off another.
On the TA murderer: I was at a friend's home tonight when the news came on. "Terrorist" was one of the nicer designations used by the people in the room. The newspapers may feel a need to be politically correct but the public doesn't....
Looking forward to tomorrow's installment.
Oh, Ilknur's expertise, not mine. :)
3000 NIS?? 800 dollars? Per month? That's probably as much as rent!
Eeek...
I think I found the selling point to convince Jews to leave Jerusalem. Go to the coast, the weather is better and gas bills are cheaper! :-)
"a favorite past-time is having your Vaad hunt for a better deal by playing one company off another."
Vaad? Rabbinical councils help you in household issues?
(or did I get the wrong definition?)
As for the shooter: I looked in haaretz in Hebrew. Still talking about a הרצח (killing), and a 'suspect'.
Well at least people know that it's every bit of a terrorist attack, even if the gov PR people would want them to consider it as something else...
First of all, thank you for the informative post. At this day and age, we rely on volunteer researchers and intellectuals as yourself to get the gist of what's going on. So it is very useful to provide us with a concise summary of the situation.
While I understand that we should leave the details to the professionals, I believe there needs to be a high level of transparency. It is obvious that the Egyptian population cannot instantaneously turn into a group of professional businessmen, politicians, and natural gas engineers (even though many would argue that they are qualified to force their opinions on the rest!). However, the Egyptian government, and the media (both public and independent) should provide us citizens with an explanation. We do not need to know the technical details (although we should be given access to them nonetheless), but it needs to be argued to us. We need to know what are the benefits, and how it generally works.
Another problem is that the Egyptian government is quite behind on technology, and underestimates the power of the web (until recently, Egypt was the only country in the entire world [developed countries like France, Germany and England included] that did not apply any sort of censorship on the internet). When such a deal goes through, there will be many articles available for the people to read on the web. Therefore, it is actually beneficial for the government to be straight-up from the beginning, and lay out the different aspects involved, and why they have gone ahead with such a deal on our behalf. While we may never get to make a choice, we should at least be given the right to be properly informed about it.
The Egyptian government has disappointed us yet again. But thanks to people like you, and to the power given to us by the World Wide Web, we can all stay in the loop, and form opinions accordingly.
Tarek bek:
Thank you for the kind compliments.
I very much agree. Beyond technical details, what we can relate to is the processes, the tenders, the public offers, etc.
As far as I know, the companies involved did not compete to get those deals - they just got them. And that pisses me off.
Hopefully we can have some sort of citizenship oversight power..
I am agree with the renegotiation between Israel and Egypt is really good because both country can present benefit.
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