Jordan, Egypt, Syria and Lebanon Sign Phase Two

UNCLAS SECTION 01 OF 02 AMMAN 000830

SIPDIS

USDOC 4520/ITA/MAC/ONE/PTHANOS
PASS TDA FOR STEINGASS/SIGLER
EXIM FOR ROBERT BOSCO
OPIC FOR ABED TARBUSH

E.O. 12958: N/A
TAGS: ENRG EFIN JO
SUBJECT: Jordan, Egypt, Syria and Lebanon Sign Phase Two
of Arab Gas Pipeline



1. (u) SUMMARY: The Prime Ministers of Jordan, Egypt,
Syria and Lebanon witnessed the signing of agreements to
begin the second phase of a pipeline to supply natural
gas from Egypt to the other three countries. This phase
will extend the current Egypt-Jordan pipeline north to
the Rihab Power Station in northwest Jordan. Future
phases will extend the pipeline to Syria, Lebanon,
Cyprus, Turkey and other European countries. Jordan's
share will be one fifth of the pipeline's 10 billion
cubic meters a year capacity. Jordan and Egypt
inaugurated phase one last summer, linking the offshore
gas fields in Egypt's Al Arish area to Aqaba. Aqaba's
Thermal Power Station is already burning natural gas.
The project is designed to supply Jordan with its needs
of natural gas for the next thirty years. END SUMMARY.


2. (u) The Prime Ministers of Jordan, Egypt, Syria and
Lebanon witnessed the January 25 signing in Amman of a
$270 million agreement to begin installing Phase Two of a
$1 billion pipeline to supply natural gas from Egypt to
the other three countries. The Phase Two agreement is
for a 393-kilometre pipeline that will run from Aqaba to
the Rihab Power Station in northwest Jordan. Jordanian
King Abdullah and Prime Minister Faisal al-Fayez told the
press on Sunday that the Arab gas pipeline project would
bolster Arab "joint action" and economic performance.

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THE PATH OF THE PIPELINE
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3. (u) The $1 billion pipeline, also known as the Arab
Gas Pipeline, begins at Port Said, in Egypt, and will
eventually end in the Syrian port of Banyas. According
to the plan, the pipeline will connect from there to the
Lebanese natural gas power plant in Zahrani by 2005, and
to the Syrian-Lebanese pipeline, called GASYLE I. From
Banyas, this will extend to Cyprus and Turkey in 2006.
According to the press, the pipeline will take advantage
of Egypt's large proven natural gas reserves (1,656
billion cubic meters, according to October 2002 figures.)

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THE COMPANIES
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4. (u) An Egyptian consortium of Egypt Holding Gas
Company, GASCO, Petrojet and Emppi will carry out the
second stage through al-Fajr Company, a local Jordanian
firm that groups Jordanian, Egyptian and other Arab
investors. Al-Fajr will construct and operate the second
phase of the pipeline on a build, operate, own and
transfer (BOOT) basis. The agreements also sets the
criteria for purchasing gas from Egypt and selling it to
the power plants in Jordan to generate electricity.

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PHASE ONE
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5. (u) King Abdullah and Egyptian President Mubarak
last July inaugurated Phase One; a 265-kilometre pipeline
that starts from the offshore gas fields in Egypt's al-
Arish area, traveling to Aqaba underwater from Taba.
Jordan's Minister of Energy and Mineral Resources, Azmi
Khreisat, told the local press that Phase One of the
pipeline currently provides Aqaba Thermal Power Station
with natural gas to generate around 650 megawatts of
electricity, which is more than 43 per cent of Jordan's
current maximum generation capacity of 1,500 megawatts.
According to the Ministry of Energy and Natural
Resources, the Aqaba Thermal Power Station is going
through conversion: currently four out of the five units
at the station are running on natural gas and the fifth
unit is still under conversion, a process that may take
up to three more months to complete.

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Comment
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6. (sbu) This pipeline is one of several that have been
proposed in recent years for transporting Egyptian gas to
the Levant and eventually to Turkey and the European
natural gas network. A route via the Gaza Strip, Israel
then northward, with an offshoot line to Jordan, is
impractical for now. Another path would have served
Cyprus by a direct marine pipeline from Egypt. Agreement
on the Jordan route is good news in terms of diversifying
Jordan's energy supply sources. However, although
increased supplies of natural gas will help Jordan meet
growing electricity generation needs, they will not
reduce crude oil imports, which Jordan will continue to
need to import at a growing rate in order to meet demand
for gasoline and other refined products. Jordan will,
however, have to figure out how to dispose of a surplus
of fuel oil that was previously used to fire electricity
turbines and for which it has not found a viable export
market.
HALE