EMG's Gas Supply to Israel Interrupted Due to EGAS Mandatory Shut Down Procedure after an Explosion in the Egyptian National Grid in the Sinai

Ampal website, Apr 27, 2011
Ampal-American Israel Corporation (Nasdaq: AMPL), a holding company in the business of acquiring and managing interests in various businesses, announced today that it has been advised by East Mediterranean Gas Co.("EMG"), in which Ampal has a 12.5% interest, that shortly after 03:30 last night there was an explosion at a gas metering station 2 Km [1.2 Miles] from Al Arish, Egypt and some 30 Km [nearly 19 Miles] from the EMG terminal. The station is owned and operated by Gasco, the Egyptian gas transport company, which is a subsidiary of EGAS, the Egyptian national gas company (EMG's gas supplier). Following the explosion EGAS has initiated its standard shut down procedure affecting gas transportation throughout the Sinai Peninsula and gas supply to Jordan, Lebanon, Syria [i.e., Arab Gas Pipeline/AGP network, please see remarks below -- D.R.]; to major Egyptian industries and gas consumers in the Sinai; and to EMG [i.e., Egypt's gas exporting company via the 100-kilometer/62-mile El Arish-Ashkelon submarine pipeline -- D.R.].

The extent of the damage to Gasco's metering station and the estimated repair period is unknown at this point. [Full story]

(The interruption of gas supplies is the second in almost three months to the pipeline network that sends gas to Jordan, Syria, Lebanon and Israel. On Feb 5, a fire and explosion at a gas metering station forced Gasco to cut off supplies to the Arab Gas Pipeline/AGP linking Egypt to Jordan, Syria and Lebanon, as well as the pipeline supplying Egyptian gas to Israel---please see my post, including remarks, here. Also, please see my post here. According to the Oil and Gas Journal, Egypt’s estimated proven gas reserves stand at 77.2 trillion cubic feet/tcf as of January 1, 2011, an increase from January 1, 2010 estimates of 58.5 tcf and the third highest in Africa after Nigeria (about 187 tcf) and Algeria (159 tcf)---please see Aaron and David Rachovich, "World's Top 22 Natural Gas Proven Reserve Holders," here. Egypt's natural gas sector is expanding rapidly with production quadrupling between 1998 and 2009. In 2009, Egypt produced roughly 2.3 tcf and consumed 1.6 tcf. Egypt's gas production totaled around 66 billion cubic meters/bcm or c. 2.3 tcf in 2010 too. With the ongoing expansion of the AGP and LNG facilities, Egypt will continue to be an important supplier of natural gas to Europe and the Mediterranean region. According to Cedigaz, in 2009 the Egyptian electricity sector accounted for the largest share of natural gas consumption (54 percent) followed by industrial sector (29 percent). While still a relatively small share, Egypt is beginning to incorporate natural gas into the transport sector through the use and development of compressed natural gas vehicles and fueling stations. Egypt began exporting natural gas in the mid-2000s with the completion of the two segments of the AGP in 2003-2006 and the startup of the first three LNG trains at Damietta in 2005. In 2009, Egypt exported close to 650 billion cubic feet/bcf of natural gas, around 70 percent of which was exported in the form of LNG and the remaining 30 percent via pipelines. Egyptian pipeline exports travel through the AGP that provides gas to Jordan, Syria and Lebanon with further additions being planned. The El Arish-Ashkelon pipeline addition, which branches away from the AGP in the Sinai Peninsula and connects to Ashkelon, Israel, began operations in 2008---please see EIA, Egypt Country Analysis Brief, Feb 2011, here. Egypt’s main focus is to increase gas production and to raise its profile as a regional gas and LNG exporter. But its ambitions for increasing exports have been hampered by rising internal gas demand. The need to alleviate domestic shortages has caused a drop in Egypt’s LNG exports, which fell last year to 9 bcm or 6.7 million tons from 13 bcm or 459 bcf in 2009---please see PIW, Apr 11, 2011, here. UPDATE: Egyptian gas exports to Israel resumed on Friday June 10, 2011. -- D.R.)

Egypt Pipeline Explosion Cuts Gas Supply to Israel

by Christopher Helman, Forbes (blog), Feb 5, 2011
An explosion today [Feb 5] on the Arab Gas Pipeline [AGP] forced Egypt to shut off natural gas supplies to Israel and Jordan. [...] [Egyptian] Oil Minister Sameh Fahmy reportedly said it could take up to two weeks to repair the damage.

The pipeline is the third most strategically important piece of energy infrastructure in Egypt after the Suez Canal and the Sumed Pipeline. But it [its El Arish-Ashkelon branch] is the most important one to Israel, delivering 40% of Israeli natural gas supplies. [Total gas consumption in Israel stood at around 5.2 bcm in 2010, of which 2.1 bcm were imported from Egypt -- D.R.]. The Israeli government said this afternoon that it did not expect any interruption of electricity supplies as the country has gas in storage and can also switch to other fuels like [fuel] oil and diesel. Israel started receiving gas from the [El Arish-Ashkelon submarine] pipeline in 2008. [...]

One thing is for sure. Faced with insecure gas supplies from Egypt, Israel must now move with haste to develop the massive reserves of natural gas recently discovered offshore. You can read about them here (Leviathan Oil Field Could Supply Israel For Decades) and here (Israel Confirms Leviathan Gas Find). [Please read also my post here]. Read more

(The branch of the pipeline that carries natural gas into Israel wasn’t directly damaged in the incident, as the Sinai incident occurred on a part of the natural-gas network before it divides into branches serving Jordan, Syria and Lebanon, via Jordan, and Israel, via El Arish-Ashkelon branch. The blast occurred at around 7 a.m. (0500 GMT) on Saturday at a gas terminal, three km from the El Arish airport, North Sinai governor Abdel Wahab Mabrouk told reporters. He said the fire was brought under control by mid-morning, after valves allowing the flow of gas from the terminal into pipelines were shut off. Actually a fire and explosion at a gas metering station forced Egypt's gas transport company/Egyptian Natural Gas Company---GASCO---to cut off supplies to the Arab Gas Pipeline/AGP linking Egypt to Jordan, Syria, etc., as well as the pipeline supplying Egyptian gas to Israel. Egypt is an important gas producer of 64 bcm/y, of which some 45 bcm/y is consumed domestically and some 19 bcm/y is exported, mostly as LNG, according to the International Energy Agency. Gas demand has been increasing very fast over the past decade at 8%/year. Due to this growth, gas exports have been limited to one third of the reserve base. Liquefaction capacity stands at 16 bcm and exports averaged 14 bcm over 2007-09. The LNG produced in Egypt is going to Spain (4.3), U.S. (4.5), UK (0.5), South Korea (1.9) and France (1.4). Some 5 bcm/y is exported by pipeline, mostly to Jordan, Israel and Syria. Both Jordan and Israel’s power sectors are dependent on gas. See also my remarks here. Furthermore, Israel's Yam Thetis field---a major supplier of gas to Israel---off coastal Ashkelon was prepared to help compensate for the loss of Egyptian gas. The halt in Egyptian supplies also triggered a request for faster development of a floating LNG import terminal project. The planned location for the LNG import facility/floating platform/offshore LNG buoy is just off Israel's central Mediterranean coast at Hadera. For Egypt's East Mediterranean Gas Supply Corp, i.e. EMG, the gas exporting company via the 100-kilometer (62-mile) El Arish-Ashkelon submarine pipeline, please read my blog posts under the category/label "Israel." UPDATE: For the resumption of Egyptian gas supply to Israel, please see my post here. -- D.R.)

World Watch: [Oil/Gas Markets and Egypt]

by Jim Washer, EI
Geopolitics is making a comeback in oil markets. WikiLeaks revelations in December about Arab support for a US nuclear strike against Iran gave a modest boost to crude oil futures, and now civil unrest in Egypt has provided the impetus to push prices above $100/bbl for the first time since September 2008. Egypt is a significant oil and gas producer, but is more important as an energy transit point -- together, the Suez Canal and the Sumed [Suez-Mediterranean] pipeline handle around 2.8 million b/d of crude and products as well as 7% of the world’s LNG trade. [See remarks below -- D.R.]. While Egypt is therefore an important chokepoint, energy markets are in unusually good shape to cope with any disruption. Oil prices may have revisited $100/bbl, but there is plenty of slack in global energy infrastructure -- Opec is sitting on some 6 million b/d of spare upstream capacity, and commercial and strategic inventories remain ample. [Full story]

(Closure of the Suez Canal and the Sumed Pipeline---see map, sorry for the blurriness and the proportion, and photo below---would divert tankers around the southern tip of Africa, the Cape of Good Hope, adding 6,000 miles---or 9,656 kilometers---to transit, according to the Energy Information Administration--EIA, increasing both costs and shipping time. According to a report released by the International Energy Agency (IEA), shipping around Africa would add 15 days of transit to Europe and 8-10 days to the United States. On the other hand, energy analysts believe the real risk is not a closure of the desert conduits---the Suez Canal and the Sumed Pipeline---but that the unrest gripping Cairo will spread to neighboring nations or other Arab countries. Barclays Capital Research report---accessed via Platts, here---noted that around 14% of the world's LNG trade transits the Suez Canal each day with the vast majority of cargoes originating in the Middle East and heading towards Atlantic Basin markets. Also, Egypt exported around 2 Bcf/d of gas in 2009, the majority [some 70%] in LNG form, accounting for around 3.2% of global LNG supply. "In the event of a disruption of LNG exports from Egypt, the greatest implications for gas markets would be for Spain," Barclays Capital said, adding that global LNG markets were well supplied with "ample" production capacity available to meet any potential Egyptian shortfall. The report also noted that Egypt exports gas via the Arab Gas Pipeline, or AGP, and its El Arish-Ashkelon branch, which has the capacity to carry about 1 Bcf/d to Israel, Lebanon, Jordan and Syria. "Most Egyptian [oil] drilling activity has been halted as a result of the political instability, as several international E&P companies have announced staff evacuations," Barclays said. "Gas production, however, has not been affected so far, and there have been no reports of force majeure on LNG deliveries. Egypt's sea ports are officially open, although staff shortages and an absence of customs officials at the Alexandria and Damietta ports are reported to cause traffic disruptions." Egypt has two LNG plants at Idku and Damietta and operations have so far not been affected despite the evacuation of foreign staff. Gas flow to Israel has also not been interrupted. Israel received an estimated 2.1 billion cubic meters, i.e. bcm, in pipeline gas from Egypt in 2010, up from 1.7 bcm a year earlier. -- D.R.)

                                             Source: Oil Capital Ltd. via EIA

                                    Photo: Suez Canal

Source: National Geographic. Description: A tanker carrying liquefied natural gas (LNG) passes through Egypt's Suez Canal in 2007.