PALESTINE AND JORDAN: AN ENERGY REBOUND WITH HURDLES

By Antonia Dimou

Originally appeared at Modern Diplomacy, December 5th, 2017

http://moderndiplomacy.eu/index.php?option=com_k2&view=item&id=3360:palestine-and-jordan-an-energy-rebound-with-hurdles&Itemid=208

Significant gas discoveries in the East Mediterranean over the Gaza marine field can favor economic synergies between Palestine and Israel as well as Palestine and Jordan paving the way towards the multilateralization of energy resources on demand and supply patterns.

At the same time, neighboring Jordan that suffers from energy shortage deploys a strategy of developing own resources with the use of renewables and of diversifying gas supply from offshore fields in the East Mediterranean.

The Palestinian Gaza Marine gas field, one of the first regional discoveries back in 2000, with an estimated 32 billion cubic meters (bcm) remains untapped despite its location close to the shore. The field’s new operator, the Royal Dutch Shell, estimates that its development is impeded by low oil and gas prices. For a breakthrough in the field’s development that requires a moderate investment of approximately $500 million, financial support could derive from international financial institutions like the World Bank’s Partnership for Infrastructure Development Multi-Donor Trust Fund or the American Overseas Investment Private Corporation (OPIC). The value of American financial support in the field’s development is two-fold as it can help address Palestinian development challenges and concurrently advance U.S. foreign policy priorities.

The exploitation of the Gaza marine gas field estimated to contain approximately 1 trillion cubic feet (tcf) would help generate revenues, offer a domestic source for water desalination and electricity generation, and prioritize exports to neighboring counties like Jordan. Notably, in implementation of its strategy to diversify energy sources of supply, Jordan has signed a Letter of Intent (LOI) to import 1.5-1.8 bcm per year from the Palestinian field via a pipeline across Israel.

The field’s development prospects are still hindered by security and political obstacles. Discussions between the Palestinian Investment Fund (PIF) that holds 17.5% of the field’s development rights, Royal Dutch Shell that owns 55% and Consolidated Contractors Company that holds 27.5% continue and center on the city of Jenin that is interested in buying the gas. Discussions also revolve on the sale of gas to the Egyptian power station in the city of al-Arish in northern Sinai to feed with electricity Gaza Strip.

Plans for the development of the Gaza marine field involve the construction of well-heads on the sea-bed, and a sub-sea pipeline from the field to the shore, making landfall at the coastal Israeli city of Ashkelon. The construction of a receiving terminal in Ashkelon could facilitate the transfer of Palestinian gas into Israel’s natural gas main network across the country. Reservations however remain over the feasibility of carrying Palestinian energy to the Israeli gas main network because for the construction of pipelines not only prior approval has to be secured by an Israeli company in charge of all underground pipelines but also compensation has to be paid to privately owned land.

A pessimistic outlook prevails when it comes to the development of the Rantis oil project in the West Bank as due to high political risks, only one offer was received that did not meet the technical or financial conditions of the tender issued in 2014. To ensure the development of the oil project, the Palestinian Authority considers the establishment of a Fund to attract international operators.

To overcome difficulties, the Palestinian Authority should support the development of the Rantis Oil project in the West Bank that will generate an independent source of revenues in the form of taxes and royalties, and will promote energy independence through reliance on indigenous resources. In the same spirit, the Palestinians should encourage the development of the Gaza marine field to transit gas either via a sub-sea pipeline to Ashkelon in Israel or to Al-Arish in Egypt for Gaza’s Power plant providing the Palestinian Authority with greater security of supply, and to alleviate the critical shortage of water in the Palestinian Territories. The Palestinian economy will undoubtedly benefit from the conversion of diesel-fired power plants into gas-fired. Equally important, gas cooperation with Israel could create a precedent which could be used as incentive for peaceful co-existence between Palestine and Israel.

Coming to Jordan, 90% of the kingdom’s energy requirements depend on imports. The growing number of refugees from Iraq and Syria further increase energy demand, which burdens Jordan’s public finances. In search of diversifying sources of energy supply, the kingdom has explored various options, including oil and gas pipelines from Iraq; participation in the development of a gas network for the purchase of energy from Cyprus; and importing gas from regional suppliers such as Qatar and the UAE through the second liquefied natural gas (LNG) terminal in Aqaba. Through research institutions, Jordan also works with scientists, NGOs and the private sector to strategize regional energy cooperation and long-term planning; emphasis is placed on the socially just distribution of revenues, addressing environmental impacts of oil and gas exploration, the establishment of national monitoring systems, and improvement of legal frameworks.

At a time of regional instability, many believe that natural gas from Israeli offshore fields in the Mediterranean Sea is a reliable source of energy for Jordan despite popular opposition to reliance on Israel. The export of gas from Israel’s Tamar field has started to Jordan’s Arab Potash and Jordan Bromine companies that are connected to Israel’s national pipeline network in accordance with the 15-year, 500 million dollars agreement signed three years ago. Political circles in Jordan believe that Amman should renegotiate the price of gas that is imported from Israel because a Greek company, Energean Oil and Gas, that recently entered the Israeli market as operator and developer of Kanin and Tarish gas fields has managed to lower the price of gas by 20% compared to the price that the partners of Tamar and Leviathan fields offer to companies.

Other energy options for electricity generation, though even if successful, cannot substitute reliance on gas involve the development of renewable energy resources that has been at the forefront of Jordan’s strategy to reduce dependence on hydrocarbons with projects like the Green Corridor designed to support the national electricity network.

To diversify gas supply sources, the government of Jordan should continue to discuss the option of transferring gas from Cyprus, either through Israel, which needs to be viewed as a natural transit country, or through Egypt. The transfer can be done either by pipeline or as LNG, though the latter is less viable due to the short distance from the Egyptian shore to the kingdom. Additionally, international banking and financial institutions like the World Bank and American development agencies like USAID could provide loans or grants to help the kingdom make the transition to renewable energy.

The development of gas resources in terms of financing, revenue sharing and political relations between neighboring countries is a prime challenge. But incentives definitely overcome challenges as all have an interest in ensuring that energy discoveries are developed for the well-being of the whole region.