Israel takes advantage of Arab delay over gas
A seminar titled “Petroleum Resources in the East Mediterranean: Economic, Political & Security Concerns” was held last week in Beirut under the patronage of the Lebanese army’s Research and Strategic Studies Center and the Lebanese Petroleum Administration.
The conference tackled the topic of geopolitical factors that emerged with the discovery of natural gas in the eastern Mediterranean, especially in light of the harsh political crisis in this region due to wars. [The conference also addressed] the lack of demarcation in the maritime exclusive economic zones (EEZ) before the start of discovery operations, not to mention the war hazards to offshore rigs.
There is no doubt that most of the petroleum activity in the world has been accompanied by political disputes arising from conflicts of interests. The eastern Mediterranean region does not differ in this regard. However, some differences can be found in the details and the nature of the conflict between one region and another, which is why the geopolitical variables of the eastern Mediterranean region are relevant. They include, for the first time in the history of the Middle Eastern petroleum industry, an Israeli interference in the Arab energy industry. Israel has taken over Arab oil fields; it occupied and exploited Egyptian oil fields following the occupation of Sinai after the 1967 war. It subsequently returned those fields to Egypt in return for the Camp David Treaty and the United States’ pledge to provide [Israel] with oil in the event of supply disruptions.
Moreover, Israel imposed its influence on the discovery of natural gas in the Gaza Marin field in Palestinian territorial waters off the coast of Gaza. Ever since the discovery of gas in 2000, Israel has banned the development of the field and any supply to Gaza's power station. Israel also imposed on the [Gaza] Strip the importation of fuel exclusively from Israeli companies, which made the Palestinian Authority incur heavy financial losses, not to mention the halt of supplies when political disputes arise. Undoubtedly, the frequent wars on Gaza are in part an attempt by Israel to sustain the ban of development of the oilfield.
The current geopolitical situation of eastern Mediterranean gas differs from the earlier situation when Israel occupied oilfields. Israel discovered gas reserves that meet its domestic consumption for decades, which prompted the Israeli government to adopt a policy allocating 60% of the reserves of each gas field to domestic consumption, with the possibility of exporting the rest to international markets.
The most important global markets for natural gas imports are Asian countries, followed by the European countries, in addition to the countries of the Middle East that have high economic growth and population increases. The US market, deemed the most important market worldwide until recently, is contenting itself with its own local gas resources following discoveries of shale gas. Thus, eastern Mediterranean gas — in the event of the discovery of adequate quantities allowing exportation after meeting domestic demand — will cater to the needs of Middle Eastern and European countries.
Natural gas export trade has not witnessed any development between Arab countries. The reasons are many, including the lack of an approved price formula for regional gas trade. European states adopt a price formula for imported natural gas based on comparing the price of gas with the prices of equivalent petroleum products. Asian countries have set the price of imported liquefied natural gas (LNG) compared with a price equivalent to the price of imported crude oil in Japan. The lack of a regional pricing formula led to the use of political influence by the importing countries over the exporting countries to impose low prices.
There are very few gas trade agreements between Arab countries, including the Dolphin Gas project for the export of Qatari gas to the United Arab Emirates and Oman; an agreement to export Egyptian gas to Jordan, which is currently subject to amendments after supply disruptions due to the bombings that targeted a pumping station in El-Arish; and the export of Iraqi gas to Kuwait during the 1980s.
Further contributing to the blocking of the Arab-Arab gas trade are agreements imposed by influential countries in countries the gas pipelines pass through. Agreements were changed according to the [influential countries'] circumstances rather than abiding by the agreed-upon obligations. They sometimes halted exports whenever a political dispute broke out between them and the exporting or importing state, or disrupted the whole pipeline network whenever required.
Israel benefited from its fast decision-making process to start discoveries and succeed. This prompted it to hold negotiations on exportation to regional and European markets. Negotiations are currently underway between companies, but obtaining a final approval requires the consent of states. The consortium of companies (US Noble Energy and partner Israeli companies) operating in Israel's giant Leviathan gas field suffers from shortage of financial liquidity for the development of the field, which cost $6 billion. The consortium tried to attract international companies to cut down costs, but did not succeed. It resorted to the signature of sale and purchase contracts with regional countries.
A need to buy gas arose among some regional countries. The cessation of Egyptian exports forced Jordan to seek out alternative gas supplies. There are now attempts to import LNG, either through Aqaba or by importing Israeli gas. There are challenges facing the Egyptian gas industry that transformed Egypt from an exporter to a net importer of gas within two years. Egypt is negotiating with Algeria, Qatar and Cyprus to import LNG, but the agreement with Qatar is unlikely in light of differences between Cairo and Doha.
In light of these developments, a memorandum of understanding was signed between Noble Energy and British BG oil and gas company to supply the LNG terminal in Idku, in addition to a memorandum with the Spanish Union Fenosa Company operating the gas liquefaction plant in Damietta. Another memorandum was signed with the Jordanian Electric Power Company (JEPCO).
The United States supports the ongoing negotiations since such relations would lead to normalization. Memorandums of understanding between companies require the approval of the concerned governments, and this has yet to happen. Egypt and Jordan are negotiating with other sources to fulfill their gas needs. The final decision depends on the price and volume of supplies.
Negotiations between Turkish and Israeli companies to export gas to Turkey are ongoing but intermittent in light of worsening Israeli-Turkish relations. There are also projects proposed by European companies to build a gas pipeline through Cyprus and Greece and connect it to the European gas network. However, some of the projects that are being negotiated indicate that Israel is attempting to tap into local markets.
Link to source: http://www.al-monitor.com/pulse/business/2014/09/httpalhayatcomopinionwalid-khadouri4688395--.html#
