The deal seals an agreement signed in 2007 in which the Egyptian East Mediterranean Gas Company (EMG) will supply the Israeli company Dorad Energy with 12.5 to 16 billion cubic meters of gas over 17 to 22 years. The estimated annual income from the sales is between $125-150 million.
Dorad Energy plans to constructs to Israel’s largest private power station with a capacity of 800 megawatts, about 8% of Israel’s total installed capacity. The plant will be operational in 2010 and the company intends to sell the gas at a market competitive price.
EMG currently supplies gas to the state owned Israel Electrical Corporation (IEC) under a 20 year deal signed in 2005, but the company recently lost a bid to supply $1 billion worth of natural gas to the IEC to another Israeli firm.
The export of Egyptian gas to Israel is highly controversial in Egypt, and as recently as April the Cairo Court for Urgent Cases overturned a ruling made by the Administrative Court to ban exportation of Egyptian natural gas to Israel.
The court made the reversal after a petition from the Egyptian prime minister and the ministries of Petroleum and Finance. The court argued that the export of gas fell solely under the jurisdiction of the state and neither the courts nor the State Council could rule on it.
“It’s very important” Dr. Manouchehr Takin, Senior Petroleum Upstream Analyst with the Centre for Global Energy Studies in London, told The Media Line when asked about the importance of gas for the Egyptian economy.
One of the main points of contention over the 2005 deal was the price that the Israel Electrical Corporation was expected to pay for the gas. According to some Egyptian estimations the country is losing $9 million daily due to price reductions given to the Israelis.
The Ampal-American Israel Corporation, which owns 12.5 percent of EMG, announced in June that an amendment to the original deal had been signed by EMG and its upstream supplier to adjust to price increases and new gas delivery targets.
“You should remember that 20-30 years ago people thought that oil was running out in Egypt and that gas was not important,” Takin said. “But discoveries were made in the Nile Delta and in the Rea Sea and everything changed.”
A representative from EMG could not be reached for a comment.