Al-Jazeera documentary scapegoats Israel for Egypt’s problems

Jul 11, 2014 | Ahron Shapiro

Al-Jazeera documentary scapegoats Israel for Egypt's problems

This is the second part of a two-part blog. The first, from June 12, took issue with the timing of an al-Jazeera documentary that accused Egypt of conspiring with Israel to defaud the Egyptian people. Part two of this blog exposes in detail the bias and inaccuracies of al-Jazeera‘s report.

Egypt has a domestic gas shortage, even though it continues to sit on decades worth of proven reserves. Industry analysts, as well as some of the world’s top business publications, have made clear that the reason for this shortage has absolutely nothing to do with Israel, which only imported Egyptian gas through a pipeline over a period of about three years, in quantities that amounted to an infinitesimally small fraction of all Egyptian gas exports. Moreover, rather than being the source of Egypt’s gas problem, Israel is today part of its solution, and is now coming to Egypt’s aid to help ease its production shortfall and meet Cairo’s contractual obligations to its trading partners.

In light of these facts, al-Jazeera has plumbed new depths of its historic bias against Israel with its release, with much fanfare, of a documentary by Clayton Swisher on June 9, “Egypt’s Lost Power”, that blamed Israel for “ripping off the Egyptian people” though the purchase of low-priced Egyptian gas, further implying that this sale was responsible for creating Egypt’s gas shortage. It also aired the allegation that Israel is now opportunistically seeking to profit from the crisis and using it as a “tool to screw” and subjugate the Egyptian people.

Worse still, al-Jazeera‘s documentary went further, airing allegations that Israel was intimately and directly involved in Abdel Fattah al-Sisi’s coup, an unsubstantiated and wildly reckless claim that – coming less than two weeks before the end of the trial of Peter Greste and other al-Jazeera journalists – almost certainly evaporated any good will that could have led Egypt’s rulers to help steer an acquittal or offer a pardon after a conviction.

Before getting to the reasons why Egypt has a gas shortage, here’s some evidence why Israel can’t possibly be the reason for Egypt’s energy problems. This evidence can be demonstrated through simple math, that shows how it is impossible that Egypt’s gas trade with Israel, while vital to Israel for a brief time, could ever have been a significant factor in Egypt’s energy strategy, because Egypt has much, much, MUCH bigger energy export destinations than Israel.

Israel’s Ashkelon-El Arish Pipeline, which came online in 2008 and was shut down to exports for good in 2012, has a capacity of 7 billion cubic feet (bcf) per year. That may sound like a lot, but it’s actually nothing – nothing – compared to the amount of gas that Egypt exported though its Arab gas pipeline to Jordan, Syria and Lebanon, which began operation in 2003 with a line to Jordan’s Aqaba power plant, extending deeper into Jordan in 2005 and expanding to Syria and Lebanon in 2009, with a maximum capacity of 360 million cubic feet of gas supplied a year (See here and here).

According to a July 31, 2013 report from the US Energy Information Administration (USEIA), total pipeline exports (Israeli and Arab pipelines grouped together) were 101 bcf in 2008, 194 bcf in 2009, and 193 bcf in 2010. Beginning in 2011, both pipelines were subject to sabotage, and the combined pipeline exports was 64 bcf in 2011 and 19 bcf in 2012.

OK – clearly a maximum impact of 7 bcf out of each of those annual figures is a small percentage, but – hold on – we haven’t begun to factor in Egypt’s liquefied natural gas (LNG) exports over the same period. Those were 496 bcf, 452 bcf, 343 bcf, 303 bcf, and 237 bcf respectively, mostly to Asia (accounting for 53 percent of Egypt’s LNG exports in 2012), and Europe (39 percent).

This means that in 2009, Israel accounted for just 1.08 percent of Egypt’s total gas exports. In 2010, with declining LNG exports, Israel’s share may have increased to as much as 1.31 percent. That’s it.

Even that percentage, however, will seem large when you compare Israel’s Egyptian gas imports (for the relatively short period the pipeline operated) to Egypt’s annual domestic production. In 2011, according to the USEIA, Egypt produced 2.2 trillion cubic feet of gas. Under such levels, Israel’s tiny pipeline could maximally only have accounted for less than one third of one percent of Egypt’s total production!

So, if Israel is obviously not the reason for Egypt’s gas shortages, what is? Experts say there are three principle reasons. First, domestic gas consumption in Egypt has been growing at the alarming rate of 9 percent per year since 2000, while production, which doubled since 2004 when Egypt began ramping up its exports, has now flatlined. Secondly, and related to the first, the reason for the high domestic demand is that Egypt subsidises its gas sales domestically, keeping prices artificially low. Finally, Egypt made too many long-term export commitments when domestic consumption was low, so in order to meet those commitments, it must now import gas to satisfy those contracts.

Furthermore, Egypt’s slumping production could be dealt with if there was enough foreign investment to extract the available gas, but Egypt’s subsidies have crippled its government’s ability to meet its financial obligations in such deals, while the political unrest has also increased risk for the billions in long-term investment that such infrastructure would require, as Keith Johnson of Foreign Policy magazine noted in February.

It is worthwhile to hear directly on this subject from one of Egypt’s foreign oil partners. In November 2012, the Country Chair and Managing Director of oil giant Royal Dutch Shell, Jeroen Regtien, gave an illuminating interview to the website Daily News Egypt about Egypt’s gas situation.

Among his revelations is his point that Egypt still has 77 trillion cubic feet of proven gas reserves – this could last for decades to come if managed correctly – something al-Jazeera’s documentary never mentions, creating a false impression to the viewer that Israel had somehow used up all of Egypt’s gas.

The questions posed to Regtien are in bold.

Energy subsidies is currently one the biggest domestic debates, what is your opinion on lifting subsidies?
We support the idea of removing subsidies and ensuring it gets only to the people that actually need it. This will probably require a number of gradual steps to ensure it happens in a balanced manner to avoid unintended consequences.
The current subsidy burden affects EGPC [the nationalised Egyptian General Petroleum Corporation] financials and profitability significantly, impacting on EGPC’s ability to pay its receivables to IOCs [International Oil Companies].
Energy subsidies also burden the government, which in turn forces the government to impose a ceiling on gas prices, thus dampens investment incentive by IOCs and affects the long term supply of gas.
Given that the government is sanctioning the importation of natural gas by the private sector, how do you see this endeavour affecting energy market in Egypt?
The decision to go for the import of natural gas is a necessary one as the gas demand in Egypt is growing every year and the supply is staying behind, from this point onwards Egypt has a gas demand-supply gap. For me there is very little alternative and I consider it a wise decision under the current circumstances. Egypt has still some 77 Trillion Cubic Feet proven gas resources, however unfortunately not enough was done in the last few years, both before and after the revolution, to attract investment and create the environment to develop the gas fields at the required pace, leading to a stagnation in supply. Given the fact it can take several years to bring a large gas field on stream, Egypt has run out of gas supply options and hence import is required.

Regtien’s conclusions are backed up in the October 2013 report “Egypt: Crisis in the energy sector” by investment banker BNP Paribas, and articles by such respected business publications as the Financial Times (May 2013, registration required) and Bloomberg, the latter of particular interest since it explains that Egypt is not unique in having to make the shift from being a gas exporter to a gas importer due to unforseen circumstances – Malaysia and Indonesia have also had to go the same route.

This reality that fuel subsidies have been damaging Egypt has not been lost on President Sisi, who, on July 4, took the unpopular step of cutting fuel subsidies in order to begin rehabilitating Egypt’s oil and gas industry, as well as its economy.

The evidence that Israel has nothing to do with Egypt’s energy problems is simply overwhelming and obvious to any fair-minded, informed person, which is why al-Jazeera‘s documentary is so outrageous. That the Qatari-owned broadcaster would air such a factually misleading report despite all evidence, knowing that it would antagonize Egypt while the fate of Australian reporter Peter Greste and his colleagues hung in the balance in an Egyptian court, should deeply disturb all of Greste’s supporters.

Al-Jazeera‘s documentary relies heavily on the testimony of a single “energy analyst” by the name of Mika Minio-Paluello for the thrust of its claims. He is touted to work for a London-based “think tank”. In reality, Minio-Paluello works for Platform, a radical leftist organisation that, according to its website, “combines art, activism, education and research in one organisation. This approach enables us to create unique projects driven by the need for social and ecological justice.” Minio-Paluello is clearly more of a radical leftist with a keen interest in the petroleum industry than an authentic energy analyst in any legitimately recognised sense.

For example, the UK Guardian‘s review of Minio-Paluello’s 2012 book “The Oil Road” said that Minio-Paluello “know[s] the [petroleum] industry from a decade of campaigning against it.”
Yet in comparison to his weak credentials as a bona fide energy analyst, his anti-Israel credentials are impeccable. Before his radicalism gravitated to petroleum, he was a former contributor to the Electric Intifada website, and he claimed to have been expelled from Israel for his subversive activities – not an very easy achievement for any activist, if true.

Minio-Paluello’s unbridled hatred for Israel pervades the al-Jazeera documentary, even down to his choice of words – refusing to call Israel by its name but rather insisting on referring to it only as “the Israeli state”.

Ostensibly, Minio-Paluello’s worst allegation is that Egypt sold some gas for below market value to Israel. Saying, “My calculations showed that Egypt lost $1.8 billion through this deal. Egypt could have made 1.8 billion more dollars by using the gas in other ways.” In doing so, he also downplayed the fact that Egypt was selling much more gas at the same price to Arab countries through the Arab pipeline. 

He suggests that Egypt could have sold it to Japan for US$12.6 dollars per unit rather than the US$1.5 to US$3 per unit that Egypt sold their gas to Israel for over the three years that the pipeline was operating.

Except, as any authentic petroleum industry professional could have told you, they couldn’t have.

The reality is that Egypt was already selling a tremendous amount of gas to Japan at the same time it was selling to Israel. Egypt would have sold more to Japan if it could have, but it couldn’t have – not because Israel was buying a miniscule amount of Egypt’s gas, but because Egypt did not have the means in place to liquefy the natural gas and place it on special-built tankers to ramp up exports to Japan. Simply put, the infrastructure needed to increase gas sales to Japan was not something that could have been added overnight – it is something that takes years to put in place and requires foreign partnerships.

Blogger Eric Schewe used to write articles about the Egyptian gas industry and is well-versed in the complexities of the industry. In 2012, he weighed in on the allegations that there had been wrongdoing in Egypt’s gas trade with Israel. The entire blog is a must-read, but lets focus on just a couple of points.

Schewe wrote:

It was only Japan’s voracious appetite for gas in the 1970s, which it could not pipe in, that prompted oil companies to develop cryogenic tanker ships that carry liquid methane at -162 Celsius. This makes it 600 times as dense as gas at room temperature and thus profitable. This technology also helped small island nations like Trinidad and Tobago, with a large surplus, export it to mainland consumers. (Trinidad is America’s #2 import source). However, the process requires massive capital investment: each plant costs $1 billion, and the ships are $200-300 million each. As a result, most liquified natural gas (“LNG”) transactions are in multiple-year contracts between producers and consumers, mediated by the international oil companies. Very little LNG enters the open market like crude oil. So with the volatility in energy markets in the past five to seven years , the “international price of gas” has been much higher than the average amount paid almost anywhere in the world under fixed supply contracts.

Schewe further explained that gas transported by pipeline is always cheaper and easier to move, and that keeps the selling price low, too. Turning it to LNG and shipping it out can be lucrative, but requires years of planning and cannot be ramped up easily.

A pipeline is much less of a commitment than an LNG plant, both in capital and its requirement for a constant flow. The Israel price was not as much as Egypt was getting from the US (where it became the #3 source of natural gas (!) from 2006-2010) for its free-market LNG, but it also required nowhere near the infrastructure to make that transaction. One can’t wish an LNG plant into existence overnight; it takes five years to build.

Finally, while Swisher’s documentary for al-Jazeera demonstrably exaggerated the significance of Israel’s gas purchases, these allegations were focused on decisions that were made in the time when Hosni Mubarak ruled the country.

The second half of the documentary aired allegations that Egyptian military leaders including Sisi had rigged a fake gas shortage last year to bring about the fall of Mohammed Morsi and that implies that its moves now to ease the shortage and meet foreign contracts by buying Israeli gas amount to treason by giving Israel power to control Egypt.

They actually quoted one Egyptian who said that the shortage in 2013 was fabricated, but that the current one is real. However, the politicised source had no inside knowledge into the gas industry, and anyone who actually looked at Egypt’s gas production figures during those times would realise that the shortage today and the shortage last year are rooted in the same problems.

In what can only be described as chutzpah, the documentary alleges that Israel is now offering to sell Egypt gas in order to extort money from and wield political control over Egyptians. Here, too, the unvarnished reality from industry analysts and Egyptian officials themselves is that Israel’s gas is actually coming to Egypt’s rescue, saving it from its creditors and helping it to deal with its shortages, and that Israel’s asking price for the gas is fair.

The documentary’s final insult, as it were, is contained in the allegation that Israel was intimately involved in the Egyptian coup. The claim was made by Abdullah Al-Arian from Georgetown University’s School of Foreign Service in Qatar, who said as follows:

There was very clear, close coordination between the Egyptian military led by Sisi and Israeli officials at the highest levels in order to insure a rapid transition the kind of resumption of a military government in Cairo.

He provided no evidence whatsoever to back up his claim.

Finally, it should be noted that – as is so often the case with cases of media bias such as this one – the documentary had a few reasonable claims mixed in with the rubbish. In particular, the testimony of Yosef Paritzky, a former Israeli energy minister during the time the Egyptian gas deal was approved, and Edward Walker, the US Ambassador to Egypt, seemed to lend a great deal of credence to the claim that Egypt’s oil and gas deals were rife with internal corruption that may, potentially, have somewhat tainted (but not necessarily implicated) foreign investors as well – including potentially an Israeli one.

A documentary exposing such corruption would not only have been legitimate, but praiseworthy for any journalist. Yet Clayton Swisher’s documentary for al-Jazeera, which cynically twisted a corruption story into an overblown claim that Israel is responsible for Egypt’s gas shortages, was not that documentary. Instead, it abandoned journalistic principles to score cheap political shots at Egypt’s new rulers as well as Israel. Moreover, this stunt was not a “victimless crime”. Such bias, unfortunately, always comes at a price.

Ahron Shapiro


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