Only four days ago, this blog reported that Cyprus and Israel are working together on the construction of a pipleine to connect their gas fields. How important this will be in the shorter term became all too obvious today with the news that Egypt has cancelled a 20-year contract, which was signed in 2005, to supply Israel with natural gas at below the market rate. Until now this gas has accounted for 40% of Israel’s natural gas.
The Egyptian Natural Gas Holding Company (EGAS), which appears to represent a veritible “cesspool of clientelism, personal relationships and private interests, breaches of government procedure, of transparency rules, and of corporate governance.” claims that Israel has not been paying for the gas, which EGAS buys from the Egyptian government. Israel has denied the claim and said that Egypt is breaching an economic annex of the 1979 peace treaty. All a trifle confusing, perhaps, but the strong rhetoric coming out of Jerusalem is tempered by Avigdor Lieberman’s assertion that this should be seen as a business and not as an economic dispute.
Implicit in the normally choleric Lieberman’s coolness might be at least some indication that Israel is already far less dependent on Egyptian gas than it was until recently., which, of course, it probably is because of the deal signed with Cyprus and the speedy exploitation of Israel’s recently discovered gas fields off of the country’s northern coast.
Whatever, the story behind EGAS, we can, therefore, expect Egypt to find its own gas reserves becoming increasingly uncompetitive and Israel to be more than a little greedy when it comes to defining its own maritime borders vis-a-vis a Lebanon; we shouldn’t expect too much from the U.N. regarding any arbitration concerning those borders. Of course, once those issues have been resolved, it might be that Merhav and any other Israeli companies who are involved with EGAS will then move back into Egypt on even more favourable terms than those which they have been enjoying since 2005.