EGYPT IS FACING A GAS CRISIS DESPITE IT HAVING BEEN, UNTIL AS
RECENTLY AS 2010, ONE OF THE LARGEST GAS PRODUCING COUNTRIES IN AFRICA.
HOW DID IT REACH THIS POINT?
AL JAZEERA INVESTIGATES THE HIDDEN STORY OF EGYPTIAN ENERGY, HOW
TYCOONS CASHED IN AS A NATION LOST OUT, AND HOW EGYPT MAY BECOME
DEPENDENT UPON ISRAEL FOR ITS ENERGY
Egypt and Israel's energy deals
After Israel occupied the Sinai Peninsula in 1967, it
extracted oil from the territory throughout the 1970s. In 1979, the Camp
David Accords returned the Sinai to Egypt, but it also ensured that
Egypt would supply oil to Israel in the years to come.
“Those Accords guaranteed Israel the right to bid on oil supplies from the Sinai Peninsula,” Professor James Stocker of Trinity Washington University told Al Jazeera. Because Israel became increasingly dependent on oil from the peninsula during the 1970s, “they wanted to ensure that they continue to meet their energy needs using those oil fields,” he said. In addition to this energy supply, the Accords brought together the two countries’ military and intelligence services, in a relationship that has now lasted for decades.
In 1994, following the Oslo Accords, in which the Palestinians formally recognised Israel, Egypt and Israel were in an even easier position to further the normalisation process. That year alone, Israeli investments were made in a $1.2bn petroleum refinery in Alexandria, called the Middle East Oil Refinery or “MIDOR”. The deal brought together individuals from Egyptian and Israeli intelligence.
Hussein Salem, a former intelligence officer on the Egyptian
side, conducted deals with Yossi Maiman, a former intelligence agent
with Israel’s Mossad. Hussein also assigned his protégé, an engineer
named Sameh Fahmy, to oversee MIDOR.
Following this initiative, Fahmy, with the help of Salem, became Egypt’s petroleum minister. “The presence of Sameh Fahmy as minister defines a new era for the energy sector in Egypt, where the resources were managed by the Intelligence of Egypt,” Hatem Azzam, who was a member of parliament in Egypt in 2012, told Al Jazeera.
With Fahmy as oil minister, Salem was able to establish a private company, the East Mediterranean Gas company (EMG) with his Israeli counterpart, Maiman. EMG would build a pipeline connecting the Egyptian coastal city of El Arish to Israel’s Ashkelon with one purpose: to supply Egyptian natural gas to Israel.
Through Salem’s strong connections to Egyptian President Hosni Mubarak and Fahmy, he was able to secure a contract that would entitle EMG to Egyptian gas at a price well below market rate, to then sell to the Israelis cheaply, with the help of his business associate, Maiman.
“In the same year [2008], gas was being exported in other countries for...vastly more, up to eight times more than what the Egyptians were receiving,” Mika Minio-Paluello, an energy analyst, told Al Jazeera. By 2010, he continued, EMG owners Hussein Salem and Yossi Maiman “were receiving [the gas] from the Egyptians for $3 and then selling it on to the Israelis for $4.50 and basically pocketing the difference”.
The price of power
Using confidential documents obtained by Al Jazeera, energy analyst Mika Minio-Paluello calculated the amount of money the Egyptian people lost in these gas deals.
Energy
Following this initiative, Fahmy, with the help of Salem, became Egypt’s petroleum minister. “The presence of Sameh Fahmy as minister defines a new era for the energy sector in Egypt, where the resources were managed by the Intelligence of Egypt,” Hatem Azzam, who was a member of parliament in Egypt in 2012, told Al Jazeera.
With Fahmy as oil minister, Salem was able to establish a private company, the East Mediterranean Gas company (EMG) with his Israeli counterpart, Maiman. EMG would build a pipeline connecting the Egyptian coastal city of El Arish to Israel’s Ashkelon with one purpose: to supply Egyptian natural gas to Israel.
Through Salem’s strong connections to Egyptian President Hosni Mubarak and Fahmy, he was able to secure a contract that would entitle EMG to Egyptian gas at a price well below market rate, to then sell to the Israelis cheaply, with the help of his business associate, Maiman.
“In the same year [2008], gas was being exported in other countries for...vastly more, up to eight times more than what the Egyptians were receiving,” Mika Minio-Paluello, an energy analyst, told Al Jazeera. By 2010, he continued, EMG owners Hussein Salem and Yossi Maiman “were receiving [the gas] from the Egyptians for $3 and then selling it on to the Israelis for $4.50 and basically pocketing the difference”.
The price of power
Using confidential documents obtained by Al Jazeera, energy analyst Mika Minio-Paluello calculated the amount of money the Egyptian people lost in these gas deals.
Energy
A wide coalition of demonstrators, eventually backed by
Egypt’s military, forced President Hosni Mubarak out of office on
February 11, but not before Hussein Salem was able to flee the country
to avoid arrest.
The egyptian uprising
Egypt Faces
In the lead-up to the July 3, 2013 military coup that
overthrew President Morsi, the country’s energy shortage was an issue
that gave way to much resentment against Morsi’s government among
Egyptians.
“Egypt’s desperate. There are queues outside petrol stations. Almost every night there’s a blackout. You never know when it’s going to be,” Mika Minio-Paluello, an energy analyst, told Al Jazeera. But the shortages during Morsi’s tenure appear to have been intentionally set up.
The egyptian uprising
Anger at the export of gas to Israel remained even after the daily protests culminated with Mubarak’s forced resignation. At least 15 bombings of pipelines in the Sinai eventually brought the flow of gas into Israel to a halt in 2011.
“The Egyptian military used the supply of gasoline in the gas station as a weapon to throw off Morsi,” Azzam said. “One day after the coup, all these queues have disappeared and everything goes back to normal.”
The Egyptian army’s supreme military council, which was overseeing the post-Mubarak transitional period, was forced to acquiesce to the calls by revolutionary forces to halt gas exports to Israel.
After Mohamed Morsi entered office in June 2012, following the first free and fair presidential election in Egypt’s history, he sought to confront the rampant corruption in the energy sector. Sameh Fahmy and Hussein Salem, who had already left to Spain where he has been living in exile, were sentenced to 15 years in prison for their roles in selling natural gas to Israel at below market rates.
Just as Morsi’s tenure in office was short-lived, so too was his attempt to confront the corruption in the energy sector. “President Morsi was facing a lot of pressure with all this network of corruption that exists in the intelligence, in the military,” Hatem Azzam, the Egyptian MP in 2012, told Al Jazeera. “This energy corruption network was one of the strongest reasons why the leaders, the army generals, decided to make the coup over Morsi.”
Egypt Faces
An energy crisis
In the lead-up to the July 3, 2013 military coup that overthrew President Morsi, the country’s energy shortage was an issue that gave way to much resentment against Morsi’s government among Egyptians.
“Egypt’s desperate. There are queues outside petrol stations. Almost every night there’s a blackout. You never know when it’s going to be,” Mika Minio-Paluello, an energy analyst, told Al Jazeera. But the shortages during Morsi’s tenure appear to have been intentionally set up.
“The Egyptian military used the supply of gasoline in the gas station as a weapon to throw off Morsi,” Azzam said. “One day after the coup, all these queues have disappeared and everything goes back to normal.”
Although the widespread energy shortage was initially created to increase popular resentment against Morsi and support for his removal by the military, Egypt’s energy sector has continued to struggle in the past year. As the general who led the coup in July 2013, Abdel Fattah el-Sisi, assumes office as Egypt’s new president, he is faced with a massive energy crisis across the country.
To make matters worse, after the Egyptian military in 2012 acquiesced to the demands of the revolutionary forces and cut off gas supplies to Israel, Yossi Maiman, through EMG, filed a lawsuit against the Egyptian government.
In it, EMG accuses the government of violating the contract signed years earlier under Mubarak’s presidency that entitles EMG to 15 years of uninterrupted gas exports to Israel. The lawsuit was raised in international courts rather than in Egyptian national courts, leading some analysts to question the role of Egypt’s sovereignty in the dispute.
EMG is seeking $8bn in alleged losses caused by the Egyptian government. This is in addition to a $6bn lawsuit by a Spanish firm, Union Fenosa, against the Egyptian government for their alleged failure to adequately supply gas to Spain.
The Egyptian government now faces lawsuits in international courts due to alleged violations of contracts detailing gas deals signed under Mubarak’s presidency, as well as debts claimed by foreign companies that total $20bn in international courts.
A new power dynamic
In January 2014, Sisi took the first step toward this initiative, when his military-backed government lifted restrictions on private oil and gas companies operating in Egypt, allowing them to import gas from any foreign entity.
These gas imports would be done through another private firm currently leading Israel’s exploration in the Mediterranean, the US-based Noble Energy.
Just a few months after the Egyptian government lifted the trading restrictions, Noble Energy and the Spanish firm Union Fenosa issued a joint letter of intent stating that the former would supply natural gas from “offshore Israel to [the latter’s] gas liquefaction facilities” in Egypt. These facilities would be used to freeze the gas into a liquid, so that it could then be transported by tanker rather than pipeline, and sold in far greater volume elsewhere.
To make any future commercial deals with Israel, the Egyptians would be required to give more than just access to these plants. Israel is also seeking a commitment for ships to have access to the Suez Canal to transport gas to lucrative markets in Asia.
“Under the Morsi government, there was no confidence that Egypt would allow such shipments to go through the Suez Canal,” said Simon Henderson, director of the Gulf and Energy Policy program at the Washington Institute for Near East Affairs. “The change in government has meant that this potential can be re-examined.”
Facing public pressure due to widespread energy shortages that resulted from years of mismanagement during and after the Mubarak era, as well as lawsuits on the international stage, the Egyptian government, led by Sisi, seems to be heading in a direction that will allow private firms to begin importing gas from Israel. “That seems like more of a compromise that lets Hussein Salem and Maiman keep making lots of money,” Mika Minio-Paluello, an energy analyst, told Al Jazeera.
Former petroleum minister Sameh Fahmy has been released from custody after an Egyptian court ruled that there should be a retrial, while the charges against Hussein Salem are expected to be dropped, at which point he is likely to return to Egypt. Meanwhile, Egypt’s hidden energy industry is back on track.
“Egypt’s desperate. There are queues outside petrol stations. Almost every night there’s a blackout. You never know when it’s going to be,” Mika Minio-Paluello, an energy analyst, told Al Jazeera. But the shortages during Morsi’s tenure appear to have been intentionally set up.
The egyptian uprising
Anger at the export of gas to Israel remained even after the daily protests culminated with Mubarak’s forced resignation. At least 15 bombings of pipelines in the Sinai eventually brought the flow of gas into Israel to a halt in 2011.
“The Egyptian military used the supply of gasoline in the gas station as a weapon to throw off Morsi,” Azzam said. “One day after the coup, all these queues have disappeared and everything goes back to normal.”
The Egyptian army’s supreme military council, which was overseeing the post-Mubarak transitional period, was forced to acquiesce to the calls by revolutionary forces to halt gas exports to Israel.
After Mohamed Morsi entered office in June 2012, following the first free and fair presidential election in Egypt’s history, he sought to confront the rampant corruption in the energy sector. Sameh Fahmy and Hussein Salem, who had already left to Spain where he has been living in exile, were sentenced to 15 years in prison for their roles in selling natural gas to Israel at below market rates.
Just as Morsi’s tenure in office was short-lived, so too was his attempt to confront the corruption in the energy sector. “President Morsi was facing a lot of pressure with all this network of corruption that exists in the intelligence, in the military,” Hatem Azzam, the Egyptian MP in 2012, told Al Jazeera. “This energy corruption network was one of the strongest reasons why the leaders, the army generals, decided to make the coup over Morsi.”
Egypt Faces
An energy crisis
In the lead-up to the July 3, 2013 military coup that overthrew President Morsi, the country’s energy shortage was an issue that gave way to much resentment against Morsi’s government among Egyptians.
“Egypt’s desperate. There are queues outside petrol stations. Almost every night there’s a blackout. You never know when it’s going to be,” Mika Minio-Paluello, an energy analyst, told Al Jazeera. But the shortages during Morsi’s tenure appear to have been intentionally set up.
“The Egyptian military used the supply of gasoline in the gas station as a weapon to throw off Morsi,” Azzam said. “One day after the coup, all these queues have disappeared and everything goes back to normal.”
Although the widespread energy shortage was initially created to increase popular resentment against Morsi and support for his removal by the military, Egypt’s energy sector has continued to struggle in the past year. As the general who led the coup in July 2013, Abdel Fattah el-Sisi, assumes office as Egypt’s new president, he is faced with a massive energy crisis across the country.
To make matters worse, after the Egyptian military in 2012 acquiesced to the demands of the revolutionary forces and cut off gas supplies to Israel, Yossi Maiman, through EMG, filed a lawsuit against the Egyptian government.
In it, EMG accuses the government of violating the contract signed years earlier under Mubarak’s presidency that entitles EMG to 15 years of uninterrupted gas exports to Israel. The lawsuit was raised in international courts rather than in Egyptian national courts, leading some analysts to question the role of Egypt’s sovereignty in the dispute.
EMG is seeking $8bn in alleged losses caused by the Egyptian government. This is in addition to a $6bn lawsuit by a Spanish firm, Union Fenosa, against the Egyptian government for their alleged failure to adequately supply gas to Spain.
The Egyptian government now faces lawsuits in international courts due to alleged violations of contracts detailing gas deals signed under Mubarak’s presidency, as well as debts claimed by foreign companies that total $20bn in international courts.
A new power dynamic
Following the recent discovery of natural gas in the
Mediterranean, most of which has been claimed by Israel, Sisi is now
attempting to secure gas imports from Israel, at a less amicable price
than Israel enjoyed from the Egyptians only a few years ago.
In January 2014, Sisi took the first step toward this initiative, when his military-backed government lifted restrictions on private oil and gas companies operating in Egypt, allowing them to import gas from any foreign entity.
These gas imports would be done through another private firm currently leading Israel’s exploration in the Mediterranean, the US-based Noble Energy.
Just a few months after the Egyptian government lifted the trading restrictions, Noble Energy and the Spanish firm Union Fenosa issued a joint letter of intent stating that the former would supply natural gas from “offshore Israel to [the latter’s] gas liquefaction facilities” in Egypt. These facilities would be used to freeze the gas into a liquid, so that it could then be transported by tanker rather than pipeline, and sold in far greater volume elsewhere.
To make any future commercial deals with Israel, the Egyptians would be required to give more than just access to these plants. Israel is also seeking a commitment for ships to have access to the Suez Canal to transport gas to lucrative markets in Asia.
“Under the Morsi government, there was no confidence that Egypt would allow such shipments to go through the Suez Canal,” said Simon Henderson, director of the Gulf and Energy Policy program at the Washington Institute for Near East Affairs. “The change in government has meant that this potential can be re-examined.”
Facing public pressure due to widespread energy shortages that resulted from years of mismanagement during and after the Mubarak era, as well as lawsuits on the international stage, the Egyptian government, led by Sisi, seems to be heading in a direction that will allow private firms to begin importing gas from Israel. “That seems like more of a compromise that lets Hussein Salem and Maiman keep making lots of money,” Mika Minio-Paluello, an energy analyst, told Al Jazeera.
Former petroleum minister Sameh Fahmy has been released from custody after an Egyptian court ruled that there should be a retrial, while the charges against Hussein Salem are expected to be dropped, at which point he is likely to return to Egypt. Meanwhile, Egypt’s hidden energy industry is back on track.
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