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Israel turns to gasoil after bombings cut off gas

Cairo, November 19, 2011

Pipeline bombings by Islamist groups have cut off Israeli gas supplies from Egypt, forcing the Jewish state to seek up to one million tonnes of gasoil on the international market to secure its energy needs for 2012, said a trader.

Flows were disrupted last week after a seventh attack on the pipeline in the desert peninsula of Sinai. At least one member of an armed Islamist group has been arrested in connection with the bombing.

'The main supply was coming from Egypt, but since the spring revolution the pipeline in Sinai supplying both Israel and Jordan has come under attack... and the Egyptians have stopped supplying,' revealed the trader, partly based in Israel.

The country's main electricity supplier is tendering to buy 750,000 tonnes of gasoil, with an option to purchase further volumes for a total one million tonnes for the year ahead. The contract will be awarded in December.

Swiss-based oil trader Gunvor with close connections to Russia is the favourite to win the contract.

'It seems that one of the giants agreed to supply the whole volume, and it seems Gunvor will get the tender,' said a trader with direct knowledge in the tender process.

But smaller volumes may be awarded to India's Reliance and an Azeri oil company called Socar, according to traders in the region.

'Reliance is very strong in that area. They have terminals, they have length. I think they are well-positioned to win this one,' said a trader based in Turkey.

Despite attempts to secure the region after a security sweep in August, Egypt has been unable to protect the pipeline from coming under attack since the start of the Arab Spring.

The Egyptian public is unhappy with the deal seen to provide gas to the Jewish state too cheaply, and six of the seven bombings have taken place since the overthrow of President Hosni Mubarak in February.

International shareholders in the firm exporting Egyptian gas to Israel are now pursuing legal claims against Egypt for $8 billion in damages from contract violations in gas supplies, following disruptions caused by the bombings.

The Egyptian government said earlier this month it would step up security measures along the pipeline. Bedouin tribesmen will be recruited to form patrols and alarm devices are to be installed along the pipeline's route.

But the million tonne tender for gasoil, which will be used, instead of gas, to produce electricity, suggests Israel expects energy supply from Egypt to remain irregular, if not cut off altogether in 2012.

The purchase is supportive for prices in the region, as the additional demand is expected to increase pressure in an already tightly balanced market for distillate products that has recently touched multi-month highs.

'In the big picture it is bullish for middle distillates. I think they will award the full amount... now Egypt has cut off their supplies,' said a trader operating in the region.

Israeli news reports say the fuel purchases required to replace the gas will push electricity prices in the Jewish state up by 30 percent, attributing the figure to estimates by the Electricity Authority.-Reuters




Tags: Egypt | gas | Israel | bombings | Gasoil |

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