Cairo seeks gas price increase for Israel

April 15, 2011 at 1:13 PM
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CAIRO, April 15 (UPI) -- Egypt's ruling military council is reviewing Cairo's contract with Israel to supply natural gas at concessionary prices, hoping to boost income by as much as $4 billion a year.

That's likely to push Israel to speed up development of its newfound -- and contested -- gas fields in the eastern Mediterranean that could provide it with energy for half a century.

But that could ignite a confrontation with neighboring Lebanon -- and particularly the Iranian-backed Hezbollah -- which claims part of the fields lie in its territorial waters.

Egypt's prime minister, Essam Sharaf, appointed following the Feb. 11 fall of President Hosni Mubarak, ordered the review of the 15-year gas contract signed in 2005 when Mubarak was in power, including a retroactive increase in the price of the gas.

The former Egyptian leader was a staunch proponent of Egypt's landmark 1979 peace treaty with Israel. Gas sales to Jordan will also be reviewed.

Egyptian gas started flowing to Israel in May 2008 through the 750-mile Arab Gas Pipeline, which also runs to Jordan and Syria.

The pipeline starts at Port Said, at the northern Mediterranean end of the Suez Canal, and runs across the Sinai Desert to the Gulf of Aqaba, an arm of the Red Sea. There the pipeline splits, with different arms supplying Israel and Jordan.

Egyptians have long complained that the prices Mubarak's regime charged were far below commercial levels, and demanded the deal be renegotiated, or even terminated.

Israelis suspect Cairo may abrogate the gas agreement if Israel refuses to pay the anticipated sharp increases in fees.

Egypt provided Israel with around 60 billion cubic feet of gas per year -- about 40 percent of used in Israeli power generations -- until Cairo shut down the pipeline after a gas terminal outside El Arish in the northern Sinai Peninsula was bombed Feb. 5.

Supplies to Israel were not restored until March 16 even though the branch of the pipeline serving Israel was not damaged.

Another attempt to blow up the pipeline was made March 27, but it failed because the timer on the bomb did not work.

This fueled Israeli concerns that with Mubarak gone the successor regime would be less enthusiastic about maintaining the 1979 peace treaty, which has been the cornerstone of Israel's regional and domestic economic policies for the last three decades.

Those fears included a possible cutoff in the gas supplies, particularly if the Muslim Brotherhood, the largest opposition group during the Mubarak era, gains power.

Most of Egypt's 80 million people oppose the treaty, signed by President Anwar Sadat, who was assassinated in October 1981 for making peace with the Jewish state.

Recent protests outside the Israeli Embassy in Cairo have heightened Israeli concerns about pressure building in Egypt to reduce, if not sever, links with the Jewish state.

Following the February pipeline bombing, Israeli Infrastructure Minister Uzi Landau urged the government to back loans to finance development of the Tamar gas field off northern Israel.

Tamar, discovered in 2009, contains an estimated 8.4 trillion cubic feet of natural gas. That's second in size only to the giant Leviathan field, which has reserves of 16 trillion cubic feet.

Landau wants to get Tamar on stream by as early as 2013. "We want energy independence and to achieve it as soon as possible," he declared. "We have to do everything to improve Israel's energy security."

Israel's only producing gas field off the southern port of Ashdod is expected to be exhausted by 2014. If Egypt cuts off gas supplies, that field could be depleted as early as 2012.

So the Jewish state has little to fall back on if Egypt does cut off, or significantly reduce, its current rate of supply.

But a drive to speed up development of Leviathan in particular could mean trouble with the Lebanese, who are fast-tracking their own exploration program.

Beirut claims a large chunk of Leviathan lies in Lebanese waters, even though these have never been formally delineated. Hezbollah, which has missiles that can hit Israeli energy facilities, says it won't allow Israel to "plunder Lebanon's resources."

Israeli Prime Minister Binyamin Netanyahu termed the gas fields "a strategic objective that Israel's enemies will try to undermine" and cowed "Israel will defend its resources."

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