Israel Prepares Gas Exports to Egypt But Who Benefits From Sherif Ismail’s Deal?

A $15 billion deal was agreed between Egyptian corporation Dolphinus Holdings and its Israeli counterpart Delek Drilling last year and, under its terms, natural gas will be pumped to Egypt via the EMG pipeline for about a decade.

The EMG pipeline was originally built so Egypt could export gas to Israel but deliveries were stopped in 2012 after terrorist groups targeted the facility. This resulted in a damages claim for $1.8 billion brought by the Israel Electricity Company against the Egyptian government- this claim was settled last month with Egypt agreeing to pay $500 million.

Despite these setbacks, Delek Drilling, the Israeli natural gas producer, will begin exports to Egypt within days as part of the $15 billion agreement orchestrated by former prime minister Sherif Ismail. The gas is being pumped from the Tamar and Leviathan offshore fields by Delek and its US-based partner Noble Energy. According to recent statements by the companies involved, the pipelines have been tested in recent months and commercial deliveries will commence within days.

These developments stemmed from an original plan for Egypt to import gas from Israel orchestrated by Sherif Ismail, who was Egypt’s petroleum minister from 2013 and prime minister between 2015 and 2018. In an article published by Arab News, Ismail was keen on reversing the direction of the EMG pipeline so Egypt could use Israeli gas to develop its petrochemicals industry.

However, the deal has been lambasted as poor value in leaked reports obtained by Mada Masr, the Egyptian news organisation. These reports contained an analysis by CI Capital, a leading Egyptian investment bank, of the cost of importing Israeli gas. CI Capital said the deal implied a price of $7.50 to $8/mmBtu (a standard measure for natural gas).

By comparison, CI Capital said that Egyptian domestic production actually costs less than half of imported Israeli costs- and in addition, Europe typically bought natural gas at a price of $5.80/mmBtu. In addition, the apparent lack of cost-effectiveness could be made even more acute through functionality issues- as Bloomberg reports, ‘some components were missing or faulty, while modifications and repairs would take longer than foreseen’.

It has also emerged recently that one of the owners of the EMG pipeline is a company called East Gas, which in turn is 80% owned by Egypt’s General Intelligence Service. As a result, Egypt’s generals and spies will reap profits from a deal that investment bankers believe is poor value for the Egyptian economy.

Furthermore, the potential high cost of imported gas comes as Egyptian consumers are already recoiling from energy price rises. Mada Masr, an Egyptian news agency, said that the removal of energy subsidies by Sherif Ismail’s government had increased prices by about 50% so far.

Sherif Ismail himself, a key figure mentioned earlier in the article, was appointed a “top aide” to President Abdel Fattah el-Sisi when he stepped down as PM last year and he is reportedly the President’s “gatekeeper”.

President Sisi has defended the Israeli gas deal, telling an audience last year: “I want this to get through to you. No, we scored a goal. Egyptians, we scored a big goal here.” Some commentators have claimed that Sisi had instead scored an “own goal” with the Israeli deal.