Month: September 2018

EMG was established to supply natural gas to countries along the East Mediterranean coast starting in El Arish in Egypt and ending in Ceyhan in Turkey through the constructing a 780 km offshore pipeline. Currently, the pan-Arab pipeline overland pipeline from Egypt, Lebanon, Jordan and then on to Syria has been constructed to circumvent the original scheme.

EMG had a license to supply Israel up to 7 bcm of natural gas per annum for 15 years with an option to extend by 5 more years. The commercial contract between EMG and IEC was signed in August 2005.

The Egyptian pipeline from El Arish to Israel is 86 km long and 26 inches externally, running from El Arish in Egypt to the Ashkelon coast at Katza. The pipeline cost $460 million.

The work was completed in 2007 and first gas started to flow on 1st May 2008 beginning with a commissioning period with contracted for supplies starting on 1st July 2008. Volumes have never been as per the contractual undertaking. According to EMG, there was a general lack of gas in Egypt due to delays in bringing in new gas fields into production and local gas demand that was higher than forecast, as well as problems with the supply system stemming from over loading of the gas supply and treatment system.

In IEC’s financial books they write that the contract with EMG is for about 1.7 bcm per year for 15 years, namely a total of 25 bcm for a total cost of $2.5 billion, or a price of $2.75 mmbtu, with the option to extend it for another 5 years for the same annual quantity under the same conditions. In order to implement the option, IEC is to inform EMG 36 months prior to the conclusion of the contract.

The shareholders in EMG include EGAS (10%) and Hussein Salem’s Mediterranean Gas Pipeline Ltd (28%) on the Egyptian side, Zell Fisher Partnership (12%), Ampal controlled by Yossi Maiman (12%), Merhav controlled by Yossi Maiman (8.1%), Merhav-Ampal Energy Holdings (4.4%) and PTT the Thai petroleum company that bought 25% of shares from MGPL.

The original gas price between EMG and EGAS was set at $1.5 – $1.6 mmbtu. In June 2009, EMG advised Ampal that EMG and its upstream supplier in Egypt have finalized and signed an amendment to the Gas Sales & Purchase Agreement with regard to re-pricing gas sold to EMG, which includes price increases, periodic price adjustments, and new gas delivery targets.

It has been reported in the press, that the price of natural gas Egypt sells to the Israeli market (EMG) then rose to $2.50-3.50 per million British Thermal Units (BTU), up from the  $1.50-1.60 per million BTU set in the 2000 agreement with the Egyptian government.

In light of changes made in the GSA between the government of Egypt and EMG, the parties updated IEC in 2009 the conditions of the original contract whilst updating it to concord with developments that occurred since it was signed.

New EMG gas price was updated to start as of 14th June 2009, after a price re-opener was negotiated between EMG and IEC. In light of changes to the agreement, under the assumption that the contract will be for 15 years, but with a new take or pay undertaking, IEC’s undertaking has increased theoretically from $2.5 to $2.8 billion dollars, based on all the assumptions in the original contract. The Take or Pay undertaking will decrease from the existing rate to the new rate which is equal to the ratio between the old gas price and the new gas price.

Price review – to take place every 5 years as of the start date (namely in 2013, 2018 and 2023) when new negotiations will take place between the parties regarding the price of the contracted for gas for the next 5 years. The new period price will only move within a narrow channel that has been agreed upon a priori. Bank guarantees – reduction of the sum and of the time that IEC provided as a bank guarantee. EMG is to provide a bank guarantee, which will remain valid throughout the whole contractual period.

Flexible gas supply: IEC has the right to order quantities of gas over and above the daily contract quantities during periods agreed upon by the parties. A monthly penalty that has been agreed upon for the non supply of gas (in addition to the hourly penalty mechanism that already exists in the agreement). Relating in the contract to EGPC / EGAS’ undertakings vis-à-vis EMG regarding the guarantee to supply the gas.

IEC to maintain the right to sue for past breaches of the contract; this right will be gradually reduced and eventual cease completely under certain conditions.

In July 2009 EMG and Dorad signed a new re-opened GSA according to which EMG would supply Dorad with gas for 17 years for a total value of $2.1 – $2.5 billion with an option to extend it by an additional 5 years (thus 22 years) under which case it would total $3.3 billion. The agreement is to supply 0.73 bcm of gas per year to Dorad at $125 – $150 million a year, with EMG to supply Dorad with a total of 12.5 bcm over the life of the contract. This estimation leads to a price of about $4.6 – $5.5 mmbtu. The original deal between Dorad and EMG was for 1 bcm per year for a total of $100 – 125 million per year. In addition, EMG is expanding its collaboration with private power plants contractor Edeltech and Turkey’s Zorlu Industrial and power plants.

Ampal which owns 12.5% of EMG announced on 19th Oct 2009 that EMG has signed three 18-year gas sale agreements with three Edeltech subsidiaries, worth $1.3 billion altogether. The three contracts are with Solbar Energy for its 100-megawatt and 90 tons of steam per hour cogeneration plant at the Solbar factory in Ashdod; Ashdod Energy for its 55-megawatt and 40 tons of steam per hour cogeneration plant at Makhteshim’s Agan Chemicals factory in Ashdod and with Ramat Negev Energy for its 115-megawatt and 110 tons of steam per hour cogeneration plant at the Makhteshim Chemicals Works factory in Ramat Hovav.

In November 2009, Ampal reported that EMG signed a GSA to supply 0.3-0.4 bcm of natural gas with Haifa Chemical Plant at Mishor Rotem in the Negev for a total of $70-100 million over 8 years. The natural gas will replace the use of fuel oil and gasoil for the production of steam for the plant and this until the power station to be set up at the plant becomes operational. The gas will be supplied as of the 2nd quarter of 2010. EMG’s existing contracts include the contract with IEC signed in August 2005 according to which they supply 1.7 bcm for 15 years with an option to extend by another 5 years at $2.75 mmbtu (the contract was re-opened as explained above in August 2009); a contract signed in June 2007 with Nesher Cement of the IDB Group for 15 years to supply 0.07 bcm in total; a contract signed with Dorad in December 2007 to supply 20 bcm of gas which as explained above was re-opened in July 2009 at the new price of $4.60 – $5.50 mmbtu and a contract signed in October 2009 to supply 3 cogeneration plants of Edeltech for a total of $1.3 billion and the contract to supply 0.3-0.4 bcm of natural gas with Haifa Chemical Plant at Mishor Rotem for a total of $70-100 million over 8 years.

On 28th December 2009 EMG signed a Gas Sale Agreement with Makhteshim-Agan for gas supply to its industrial uses over a contract term of 5 years. The gas delivery is scheduled to begin in the middle of 2010.

Ampal announced on 7th February 2010 that it has been advised by EMG that Israel Electric Corporation has informed EMG that IEC has received all of the required approvals for the coming into force of a certain Amendment to the Gas Sale Agreement signed by EMG and IEC on September 17, 2009 . The total contracted gas supply to IEC is approximately 42 BCM and the total value of the contract is approximately $6 billion.

At the start of 2011 problems with the supply of gas started and gas exports were halted on February 5 2011, following an explosion at a metering station in El Arish in Egypt, where the 100km export pipeline to Ashkelon begins. Gas exports were resumed on March 14th with costs having reached $1.5 million in losses a day for Israel. The Egyptian public, already resentful of gas exports to Israel (which are widely believed to be priced well below market norms), are likely to ramp up their opposition to a resumption of gas flows following a March 6 report in Kuwaiti newspaper al-Jarida which published documents allegedly from the Egyptian interior ministry detailing unofficial commissions that the family of former Egyptian president Hosni Mubarak earned from the sale of gas to Israel.

26th March 2011 – Ampal announced that this morning an explosive device was placed at a GASCO (the Egyptian gas transport company) location along GASCO’s upstream gas pipeline leading to EMG’s pipeline as well as pipelines leading to Jordan, Lebanon, Syria and major Egyptian cement industry and power generating gas consumers in the Sinai Peninsula. The explosive device did not detonate and no damage to the system was reported. As a standard precautionary measure, GASCO temporarily shut down its upstream valve for a short period of time. The upstream valve has been reopened and the gas supply has returned to normal. In the interim, for several hours earlier today the pressure in the GASCO system subsided causing a corresponding decline in the EMG pipeline pressure, resulting in a slow-down in gas delivery to EMG’s Israeli customers. The gas supply to EMG’s Israeli customers is back to normal.

27th April 2011 – Ampal announced today that it has been advised by EMG that shortly after 03:30 last night there was an explosion at a gas metering station 2 Km from Al Arish, Egypt and some 30 Km 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 (EMGs 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; to major Egyptian industries and gas consumers in the Sinai; and to EMG. The extent of the damage to Gasco’s metering station and the estimated repair period is unknown at this point.

4th July 2011 Ampal announced today that it has been advised by EMG that shortly after 1:30 last night there was an explosion along the Egyptian gas pipeline, some 100 kilometers west of Al Arish, due to an alleged terror attack. The pipeline 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). According to EMG, GASCO instructed all its clients to stop taking gas, in accordance with GASCO’s procedures and precautionary measures. Currently, GASCO’s experts are assessing the damage to the Egyptian pipeline.

30th July 2011 – Ampal announced that in the wake of violent incidents in El-Arish there was an attempt to cause damage to the EMG site near El-Arish. The security forces on site returned fire, prevented any penetration of the EMG site and repelled the attack. No casualties were reported. EMG reports that the incident will not affect its operations once EGPC resumes supply after it was interrupted due to an explosion at a GASCO terminal on July 12, 2011.

AMPAL TASE October 23, 2011 that initial gas supply to EMG, and subsequently to EMG’s Israeli customers, which was interrupted on July 12, 2011, has resumed today after the successful testing and commissioning procedures that started on October 21, 2011

10th November 2011 – Ampal announced that between Wednesday, November 9, 2011 and Thursday, November 10, 2011 there was an explosion along the Egyptian gas pipeline, approximately 20 kilometers west of EMG’s site at El-Arish, due to an alleged terror attack. The pipeline 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 area and gas supply to Jordan, Lebanon, Syria; to major Egyptian industries and gas consumers in the Sinai; and to EMG. The extent of the damage to GASCO’s pipeline and the estimated repair period is unknown at this point. Neither EMG’s site nor EMG’s pipeline were damaged as the affected GASCO’s pipeline is not a part of the EMG pipeline system.

IEC stated in its books that in 2011 the actual volumes supplied were about 30% (total of 137 days of supply) of contractual quantity and that with the cut in the supply of gas EMG told IEC that FM was behind the bombings of the pipeline and in September 2011 the board of directors of IEC decided that they would start an arbitration procedure against EGAS and EMG to get compensation for damages caused and that would be caused for the non supply of Egyptian gas and until the start of supply of gas from Tamar.

On 22nd April 2012, EGAS unilaterally announced that it had cancelled its GSA with EMG that supplies the gas to IEC. The agreement between IEC and EMG was not cancelled.

In April 2012, the international chamber of commerce in Paris appointed the arbitration composition against EMG and the Egyptian companies involved in the framework of the original agreement and the tripartite agreement. IEC is suing more than $2 billion dollars compensation for damages causes and that will be caused to IEC.

On 31st May 2012, the first debate took place in Paris in front of the arbitration board with the participation of the parties. The debate dealt with procedural issues, including the place of the arbitration and an agreed timetable was set for the arbitration procedure and it was decided that the first issue to be debated would be the question of the judicial authority of the arbitrators which is in dispute. The parties submitted their written claims regarding the judicial authority on 31st July 2012 and their response on 16th October 2012

Explosion dates:

1. 5th Feb 2011 – first explosion – 17th March – supply to Israel renewed after 45 days
2. 27th April 2011 – 2nd explosion in pipeline – 6th June – supply to Israel renewed partially after 40 days
3. 4th July – 3rd explosion
4. 30th July – 4th explosion with no gas yet flowing
5. 27th September 2011 –
6. 9th November 2011
7.
8. 28th Nov 2011
9. 18th Dec 2011

September 2018 – Delek Drilling and Noble in negotiations to buy certain shares of EMG

Hussein Salem’s Middle East Pipeline Company: 28%
PTT of Thailand 25%
Egypt’s Government (EGAS/EGPC) 10%

The holdings that are currently being sold:
Israeli Institutions: 4.5%
Yossi Maiman via his private company Merhav: 8%
Sam Zell and David Fisher: 8%
Ampal American, company controlled by Yossi Maiman: 12.5%