First Published at Modern Diplomacy on October 10, 2016
Also Published at Greek News, A, American-Greek Weekly on October 16, 2016 (1st Viewed in the Weekly's Top 7 for Oct.16-23, 2016)
Published at Foreign Policy News, Washington DC
By Antonia Dimou*
The Eastern Mediterranean’s gas resources can promote cooperation,
resolve conflicts and deliver financial benefits, resulting in contributions to
the economic development of Israel and Cyprus.
Photo: http://moderndiplomacy.eu/media/k2/items/cache/642d42e2da7734c89c4d0655b314c89a_L.jpg
Gas discoveries in Israel have the potential to transform the country’s
energy outlook but despite opportunities, the exploration and development of
gas fields with proven reserves have faced a stalemate due to regulatory issues
and political concerns.
In an effort to overcome obstacles and reignite a number of preliminary agreements to
export gas, the Israeli government approved a
revised framework for gas regulation that favors the
development of Leviathan and the expansion of Tamar fields seeking
to establish a stable business climate and paving
the way for Israeli gas to be exported. The main
outlines of the gas regulatory framework center on the mandatory sale by Noble, Avner Oil
& Gas and Delek of all their rights in the Israeli
Tanin and Karish fields; and, a stability
clause which foresees that the Israeli government guarantees regulatory
stability for ten years. Additionally, as
prescribed,
the development plan of Leviathan field whose 9 billion cubic meters (bcm)
annual gas surplus is destined for export will be carried out in two stages:
The first lies in four development wells and an annual capacity production of
12 bcm. The second lies in four additional wells and an increase of the
capacity production by another 9 bcm. Leviathan’s exports are destined to
satisfy Israeli domestic demand, Jordanian and Egyptian power and industrial
needs, as well as Turkish ambitions of becoming a hub for Eastern
Mediterranean energy.
The supply of natural gas from the Leviathan and Tamar fields to Egypt
which suffers from domestic gas shortages due to export obligations and a
growing population is considered geopolitically important. Israel’s energy
policy vis-à-vis Egypt has a dual dimension focusing not only on the sale of
gas from Israeli fields, but also on the use of Egypt’s LNG facilities as
export terminals to reach markets like Europe and Asia.
Partners of Israel’s Tamar field signed a non-binding letter of intent
to export up to 2.5 trillion cubic feet of gas over 15 years via the Damietta
LNG plant in Egypt operated by Union Fenosa Gas, a joint venture between
Spain’s Gas Natural and Italy’s ENI. Similarly, Leviathan partners reached a
preliminary agreement with British Gas (BG) to negotiate a deal to export gas
to BG’s liquefied natural gas plant in Idku (northern Egypt) via a new undersea
pipeline. The first formal approval by the Israeli energy ministry for the
export of gas from the Tamar field to Egypt's Dolphinus Holdings has been
granted in late 2015. Although it still hinges on bureaucratic approvals, the
decision paves the way for enhanced bilateral cooperation in the gas sector.
Another prime Israeli export option is linked to Jordan whose 90% of
energy requirements depends on imports. The growing number of refugees from
Iraq and Syria further increase energy demand, which burdens Jordan’s public
finances. At a time of regional instability, reliable gas imports could
strengthen Jordan’s energy security. It is in this context that in
mid-September 2016 Leviathan’s main partner Noble signed an agreemet with
Jordan’s National Power Electric, which will act as buyer of the gas, to supply
1.6 trillion cubic feet (tcf) over a fifteen-year period.
Regarding export routes, a combination of options is on the table
prioritizing the need for the construction of an 8-kilometer pipeline from
Israel to Jordan that would transfer natural gas from Leviathan at a border
location to be specified. A related
project focuses on the construction of a 25-kilometer pipeline that would connect
northern Israel to northern Jordan, facilitating the supply of natural gas to
major Jordanian manufacturing plants. Infrastructure partnerships between
Israel and Jordan are deemed to provide real incentives to normalize relations,
given that the supply of cheap and reliable energy can bolster Amman’s economy
and Leviathan partners’ export earnings can increase.
The option of a pipeline from Israel’s gas fields to Turkey has given
rise to a divergence
of views. On the one hand, advocates to the
pipeline option argue that the construction of the 480-kilometer pipeline that would connect Leviathan field to the Turkish coast
is not only financially viable but also guarantees Israeli access to the
Turkish domestic market which consumes 40 bcm annually and to transit
routes across Turkey into Europe. The recent
reconciliation between Israel and Turkey is estimated that it can cement a lucrative gas export agreement to be supported by
bankable contracts, thus supporting the level of Leviathan’s scheduled
development plan. All this, on the provision that the Cyprus conflict is
resolved given that Cyprus could effectually veto the
crossing of the pipeline through its Exclusive Economic Zone under its rights
as a signatory of the United Nations Convention on the Law of the Sea (UNCLOS).
On the other hand, opponents to the pipeline option support that
post-coup Turkey is expected to consolidate regional power through the
cementing of relations with Russia and Iran, while the Turkish presidency
is deemed to become more autocratic. This may undermine prospects of the undersea
pipeline option since Israel appears unwilling to permit its
gas to be held hostage. In general, changes in
regional politics such as Turkey’s orientation could endanger the
sustainability of Israeli gas exports, as has happened with Egyptian exports to
Israel. Reservations are
also expressed regarding financial security in any future framework energy
agreement between Israel and Turkey, with suggestions on
that financial security could be provided by a third party such as the U.S.
Overseas Private Investment Corporation, the U.S. Export-Import Bank, or the
German Euler Hermes company.
In search of progress, it is evident that Israel looks into multiple gas
export options so that its gas is not tied to a single market where changing
bilateral relations or geopolitical conditions can affect the sustainability of
exports and thus impact negatively its energy wealth.
Coming to neighbouring Cyprus, the island is assessed to gain
significant economic benefits from its commercially viable levels of
hydrocarbon resources. These benefits come in the form of job creation, foreign
direct investment, royalties, and taxes paid to the state treasury by energy
suppliers. The island’s recent third licensing round for the blocks 6, 8 and 10
within its Exclusive Economic Zone has attracted major international energy
players such as ENI, Total, Exxon Mobil and Qatar Petroleum on the basis of
closeness to the Egyptian Zohr and the Israeli Leviathan gas fields. The plan
would be to connect gas discoveries in Cyprus with Egypt’s by pipeline and
re-export reserves as liquefied natural gas by utilizing the Egyptian Idku and
Damietta LNG facilities. The development of Cypriot gas fields necessitates
synergies among local and international players, users, and producers eager to
export gas to a broader market.
The criteria for the evaluation of the third licensing round’s
applications are related to the technical and financial ability of the energy
companies; the financial proposal of the applicant to obtain a license; the
applicant’s commitment to training of personnel; political considerations in
having major international energy players involved in the Cypriot blocks; and,
any irregularities and lack of responsibility that the applicant may have
demonstrated under a previous license in Cyprus or in any other country.
The declaration
of commerciality of the Cypriot Aphrodite field in 2015 by Noble, Delek and Avner Oil & Gas partners has been considered a
significant step for the transition from the stage of exploration to that of
exploitation, and a step towards the monetization of the island’s indigenous
gas reserves both for domestic use and exports. Nevertheless, Cyprus faces multiple challenges to monetizing natural
gas resources that are associated with regional export options, such as the
pipeline project that would connect Israel’s gas fields to the Turkish coast. There
is growing consent that the natural gas discoveries in Cyprus could prove a
catalyst for a breakthrough in the strategic impasse over the island, which is
still divided between Greek-Cypriot and Turkish-Cypriot communities. There are estimates according to which the breakthrough can also pave
the way for the export of gas from Cyprus to Turkey given
that distances from the Cypriot to the Turkish coasts are short and the length
of an undersea pipeline would be approximately 100 km.
No doubt that Cyprus’s natural gas discoveries present a strategic game
changer that poses all kinds of risks and opportunities for the island’s
economic recovery. Looking ahead, what
needs to be examined is the creation of a Cypriot sovereign wealth fund, based
on the Norwegian model, to recycle revenues, and the establishment of a
regional sponsor-supported non-governmental organization or council that would
include energy companies, energy industry service providers, energy industry
associations, and other related stakeholders in the region. Once established,
the council could seek government participation from the littoral states of the
Eastern Mediterranean. It could then become a point of reference and also an
avenue of communication between governments and industry, as well as a
clearinghouse for ideas and plans for mutually beneficial energy development in
the region. If successful on regional energy, such an organization could
eventually focus on a broader scope of regional cooperation.
Unquestionably, Israel and Cyprus
present two countries that can serve as pillars of energy cooperation and
development in the Eastern Mediterranean. Working from this collective
strength, they can pursue bilateral and regional policies for the prosperity of
their peoples and the coming generations.
* Antonia Dimou is Head of the Middle East Unit at the
Institute for Security and Defense Analyses, Greece; and, an Associate at the
Center for Middle East Development, University of California, Los Angeles
Also Reproduced:
* Ecoico.eu, http://www.ecoiko.eu/israel-and-cyprus-in-search-of-solutions-to-natural-gas-challenges-in-the-eastern-mediterranean/
* Energy News Cyprus, http://www.energynewscyprus.com/israel-and-cyprus-in-search-of-solutions-to-natural-gas-challenges-in-the-eastern-mediterranean/
* All 4 Syria News Agency, http://www.all4syria.info/Archive/353105
1 comment:
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