Published at National Security and the Future Journal, Vol. 17, Number 1-2, 2016, Publisher: St George Association, Zagreb, Croatia, http://nsf-journal.hr/onlineissues/volumesandissues/tabid/5258/id/1186/svezak-17-no1-2-2016.aspx#.WA6BS4-LTIV
A. Introduction
The discovery of natural gas resources in the
East Mediterranean promise important benefits of energy security and economic
gains. A 2010 US geological survey showed that the Levantine basin - offshore
Israel, Gaza, Lebanon, Syria and Cyprus - could hold as much as 120 trillion
cubic feet, thus securing supply of energy not only for the countries of the
region but also for Europe.
As this paper will show, regional
countries are currently at various stages of exploration and development which
are however fraught by political risks and policy dilemmas. Thus cooperation,
conflict resolution and the creation of interdependency structures are prerequisites
to unlock the potential of the region and safeguard the unimpeded flow of
future gas production.
B. Israel as a
Catalyst for Regional Energy Cooperation
The gas discoveries have strengthened Israel’s energy security, and
decidedly contribute to the reduction of Israel’s dependence on foreign energy.
They also provide the promise of economic advantages given that natural gas
supplies direct income to the state treasury as a result of royalties and taxes
paid by gas suppliers.
Israel is a leading country for
regional energy cooperation because the preparations to extract gas from its
major fields, Leviathan and Tamar, are already at advanced stages. For the
record, Tamar was the largest deepwater natural gas discovery in the world in
2009 and sales from the field began in 2013, just only four years from
discovery. Leviathan was discovered in December 2010 and represents the
largest exploration success, with gross mean resources of 22 Tcf of
natural gas[1].
Following Israel’s
High Court of
Justice approval of a government decision to export 40 percent of the country’s offshore gas discoveries, Israel looks into a combination of
export options on the basis that gas is a game changer stressing the
inevitability between macroeconomics and geopolitics. It is in this context,
that priority is given to Jordan as disruptions of energy imports from Egypt
have impacted the Kingdom’s public budget and fiscal space for broader
development goals. The sale of Israeli gas to Jordan falls within Amman’s broad
strategy for transformational change in energy supply, including a
diversification of natural gas imports from alternative sources in the region.
Noble Energy, a heavy foreign investor in Israel’s fields, has signed a
contract worth $500 million to supply 66 billion cubic feet of gas from
Israel’s Tamar field to Jordan’s Arab Potash and its affiliate Jordan Bromine.
Leviathan partners Noble and Delek have also signed a non-binding letter of
intent with Jordan’s National Power Electric, which will act as buyer of the
gas, to supply 1.6tn cubic feet over a fifteen-year period[2].
Other investigated projects focus 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.
It is acknowledged that infrastructure partnerships between Israel and
Jordan can provide real incentives to normalize relations, given that the
supply of cheap and reliable energy will bolster the kingdom’s economy and that
Leviathan partners’ export earnings will increase.
FIGURE 1: ISRAEL’S EXPORT OPTIONS
An additional option for the monetization of Israeli gas centers on
Egypt, which suffers from domestic gas shortages due to export obligations and
a growing population. Cairo’s political instability, heavy regulations, and
ceiling on onshore prices have transformed over the years the Arab country from
a gas exporter into a heavy energy importer. Although Egypt’s total proven
reserves are approximately 2.2 trillion cubic meters, its production levels and
reserves have not improved despite technological breakthroughs and massive capital
expenditures, leaving two major LNG facilities in Damietta and Idku virtually
idle.
For this reason, Israel’s energy policy vis-a-vis Egypt has a dual dimension; on the one side, it centers on the sale of gas from Leviathan and Tamar fields, and on the other side, it looks into using Egypt’s LNG facilities as export terminals to reach markets like Europe and Asia. Thus, pipelines from Israel’s gas reserves to Egypt for liquefaction and re-export has become a real choice, taking into account the close distance between the Egyptian and Israeli coasts. The option for the transport of Israeli gas to Egypt is either through reversing the flow in the Egyptian export pipeline that crosses Sinai or the construction of a new undersea pipeline and it is esteemed as viable not only because of the royalties and revenues Israel will collect but also because of the potential positive impact on Egypt-Israel bilateral relations.
Already, partners of Israel’s Tamar field have 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.[3] Similarly, Leviathan partners reached a preliminary agreement with British Gas (BG), a British oil and gas company, to negotiate a deal to export gas to BG’s liquefied natural gas plant in Idku (northern Egypt) via a new undersea pipeline.
To move one step further, the
recent decision of the Israeli energy ministry to grant its first formal
approval for the export of gas from the Tamar field to Egypt's Dolphinus
Holdings, while still hinging on regulatory and other bureaucratic approvals,
paves the way for regional cooperation in the gas sector that can eventually
include countries like Jordan and Cyprus. Notably however, gas import talks
have ceased due to the recent rule of the International Chamber of Commerce
according to which Egypt must compensate with 2 billion dollars Israel for the
repeated halting of gas supplies via the El-Arish-Ashkelon pipeline. According
to energy officials, it is important for talks to restart on the precondition
that both countries agree on compensation reduction or even complete
compensation elimination in lieu of an import agreement with Israel that will
definitely revive the Israeli gas export infrastructure.
Another export option to immediate neighbors
includes a subsea pipeline from Israel’s Leviathan field to Turkey, but this is
currently considered politically non-viable. There is widespread consensus in
Israel that without a political reconciliation between the two countries, any
advancement of an export agreement remains remote. Specifically, even though the project is tempting to private
companies because the construction of the 480 kilometer pipeline would be cheap[4],
Israel appears cautious in entrusting its most precious resource to Islamic
Turkey because
of the likelihood that the Turkish leadership waves the card of gas in the face of Israel in times of
political crises thus rendering Israel hostage to Turkey.
Reservations are also expressed regarding
financial security in any future framework energy agreement between Israel and
Turkey, with suggestions centering on that financial security can 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.
When it comes to the Israel-Palestine front, discussions revolve around
the Palestinian control of the West Bank’s energy industry with the enforcement
of a deal signed between Leviathan partners and the Palestine Power Generation
Company, which foresees the purchase of $1.2 billion worth of Israeli natural
gas over a 20-year period.[5]
For the gas to be shipped to the Palestinian power plant in Jenin, which will
permit Palestinians to produce their own electricity and create jobs in the
West Bank, construction of a 10-kilometer gas pipeline from Northern Israel has
to materialize. But it is still pending because of lack of political will.
C. A Note on Israel’s Anti-trust Challenge
The regulatory uncertainty in
Israel has stalled the development of the Leviathan field and thrown into limbo
gas export agreements with Jordan and Egypt since December 2014 when the
Israeli Anti-trust Authority commissioner issued a recommendation for investing
companies to divest from the Tamar and Leviathan fields.[6]
The reason is that the Israeli regulatory framework foresees the establishment
of a competitive gas market and upon this the anti-trust commissioner has the
authority to block any trade agreement perceived as violating competition laws.
In an effort to
overcome regulatory obstacles and reignite a number of preliminary agreements
to export Israeli gas to Jordan and Egypt, the Israeli government approved a
revised gas agreement in August 2015 with the partners of Tamar and Leviathan
fields.[7]
The revised gas agreement has aimed to manage the speedy development of the gas fields and
create competition, setting aside anti-trust regulations and conflicting state
decisions on issues, such as taxation and prices.
Under the agreement terms, in a frame
of six years, Israel’s Delek group will sell its holdings in the Tamar, Tanin
and Karish fields, and US Noble Energy will reduce its holdings in Tamar to no
more than 25 percent. In addition, the agreement contains a “stability” clause
that binds the government for the next fifteen years to unchanged regulations
pertaining to the structural and financial facets of the Israeli gas industry.
The agreement also foresees the implementation of a deal to export gas from
Tamar field to the Egyptian liquefaction plant of Idku for re-export to Europe,
and the introduction of a timetable for the development of the Leviathan field
by 2019 with Noble Energy’s and Delek Group’s commitment to invest $1.5 billion
over the next two years.
The Israeli Supreme Court’s March 27, 2016 decision that the
parliamentary approved framework gas deal struck
between the government and Noble/Delek partners in Israel’s Leviathan field is
illegal on the basis that its central piece, the stability clause, is unconstitutional has
shaken up Israel’s energy sector.[8] The reason is that if investing companies
are forced to disengage, the possibility of developing Leviathan will be
jeopardized for the coming years. Equal important, the resulting delays in
progress on proposed supply projects between Israel and neighboring countries
can damage the former's standing and credibility as a reliable supplier of gas
resources. Thus, there is urgent need for a policy solution based on
considerations that Israel cannot have a truly competitive market as there are
two main fields and one meaningful buyer, which is the Israeli Electric
Corporation. Practically, a policy solution can satisfy the terms of Israel’s
anti-trust legislation which allows exemptions from limitations when a sector
is viewed to have a natural monopoly.
By all means, regulatory stability
is deemed significant for investors who currently stand on a fine line between
staying or leaving the Israeli energy market, and eye benefits and risks in the
post-sanctions Iranian opening of a large gas sector.
D. Cyprus Changes
Tides for Natural Gas
Another
significant player for regional energy cooperation is Cyprus given that gas
discoveries can turn the island into a net natural gas exporter. The recent
declaration of commerciality for the Aphrodite gas field by its partners
confirms the existence of substantial recoverable natural gas reserves in Block
12 of Cyprus’ Exclusive Economic Zone (EEZ).[9]
Commerciality of Aphrodite field presents a milestone to Cyprus’ transition
from the stage of hydrocarbons exploration to that of exploitation, and a significant
step towards the monetization of the island’s indigenous natural gas reserves,
both for domestic use as well as exports.
FIGURE 2: OFFSHORE CYPRUS HYDROCARBONS
EXPLORATIONS BLOCKS
Cyprus has already signed a
Memorandum of Understanding with Egypt on gas cooperation for the downstream exploitation
of output from the Aphrodite field by utilizing gas infrastructure existing in
the Arab country via a direct subsea pipeline. Additionally, the inauguration
of a tripartite partnership between Cyprus, Egypt and Greece with the signing
of the Cairo declaration in November 2014 falls on maritime security and energy
cooperation, and is currently reinforced by high level political and technical
meetings.[10]
The Greek dimension in the partnership is important because of Greece’s strategic location at the
crossroads of Europe, Asia and Africa that can cuddle Cyprus-Egypt as well as
Israel energy cooperation by linking gas pipelines away from war risk zones.
In monetizing natural gas resources, Cyprus also needs to face a prime
challenge associated with one of the multiple regional export options that are
on the table, which is the pipeline project that would connect Israel’s
Leviathan field to the Turkish coast. For the Cypriot side, the prerequisite to
this export option is the resolution of the Cyprus conflict since the pipeline
would have to cross Cyprus’s EEZ. 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.
It is in any case noticeable that a vote of
confidence related to the island’s regional energy standing is conceded by
major oilfield services companies, such as Halliburton and Schlumberger that
have based operations for the East Mediterranean in Cyprus.[11]
No doubt that Cyprus’s natural gas discoveries
present a game changer that poses all kinds of risks and opportunities for the
island’s economic recovery and growth. It is in this context that policies need
to center on the creation of a Cypriot sovereign wealth fund, preferably 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.
E.
Greece’s Challenge
for Exploration and Production: What Lies Ahead
Development of Greece’s energy reserves will
likely be further delayed unless key challenges are addressed. These challenges
include domestic political instability, the high cost of exploration and
drilling, the prolongation of the Exclusive Economic Zone (EEZ) delimitation
problems with neighboring Turkey, and cheap electricity prices imposed by the
state-monopoly of the Public Power Corporation.
It is important to highlight the value of
Greece as a transit country for regional gas supplies to Europe, especially
given the lengthy process of exploration and development of major energy
projects that are expected to increase economic
growth, job creation and competitiveness. The Trans Adriatic Pipeline
(TAP) route for example will run through 13 provinces in Northern Greece and is
expected to create 10,000 direct and indirect jobs, even though approval was
delayed to mid-January 2016 due to objections from environmental groups and
local communities.[12]
Despite the belief that oil and gas exploration and production (E&P) could
help mediate the economic crisis, the Greek government has proceeded with only
three concessions, delaying the approval of licenses and permits. Specifically,
bids for the onshore licensing round of areas in Southern and Western Greece
are currently under evaluation, as is the second international licensing round,
whose deadline expired in July 2014. Prerequisites
for attracting international companies in Greek gas E&P include
resolving the Greek political decision-making standoff; the approval of a new
regulatory framework for the gas sector; and the appointment
of specialized personnel at the Greek Hydrocarbon Management Company (EDEY) to speed
tender procedures.
FIGURE
3:
EXPLORATION BLOCKS ALONG WESTERN AND SOURTHERN GREECE
Energean Oil and Gas company,
Greece’s only hydrocarbon producer, has initiated a $200 million investment
plan for 2015-2018, which is aimed at raising production to 10,000 barrels per
day by the end of 2017.[13] This
is a significant increase from today’s 3,000 at the Prinos basin in the north
Aegean Sea. In the context of Israel-Cyprus-Greece synergies, Energean
considers Israel a key country and thereby has taken the decision to commit to
offshore Israel through the joint Ocean/Energean deep-sea operator even if that means that the Greek company
will be excluded from Iran.
F. The Security of
Mediterranean Oil and Gas Infrastructure
Security needs to be prioritized in the Eastern Mediterranean.
Terrorism, human trafficking, and illegal migration pose major threats to the
security of the oil and gas industry and thus require a collective regional
response. A thorough examination of effective security measures finds that the
Australian experience could be an efficient guide for the East Mediterranean.
Australia is the world’s ninth largest energy producer, accounting for around
2.4 percent of world energy production, generating $28 billion in revenue
annually, and contributing 58 percent of the country’s primary energy needs.[14]
Australia’s experience has been utilized to improve the security framework of
the oil and gas infrastructure in the Gulf of Mexico.
Assessments indicate that terrorist threats to offshore infrastructure
could emanate from home-grown or internationally driven terrorist operations.[15]
Thus consideration has to be given both to extending and hardening current
security exclusion zone boundaries and to increasing the safety and security of
offshore facilities from unlawful or unauthorized intrusion and threat.
Recommendations focus on the introduction of a three-tiered approach to security
zoning for all offshore facilities: 1) a cautionary zone of 15 nautical miles;
2) an area to be avoided of 5 nautical miles; and 3) an exclusion zone between
1 and 2.5 nautical miles, with approval to enter granted only by the
facilities’ operator.[16]
| Physical Threats to East Mediterranean Energy Supply have to approached in terms of: | |||
Pipeline security:
Most oil and natural gas pipelines run above-ground and extend over hundreds of miles, making them highly visible and difficult to protect. Pipelines are prime symbolic targets, seen as representing foreign influence & economic or political inequality.
For example, politically motivated groups have attacked oil pipelines in Colombia and Nigeria, while since 2011 Arish Askelon gas pipeline from Egypt to Israel and Jordan has been repeatedly blowed up.
In terms of:
Maritime Security:
Oil and LNG tankers are slow moving and rarely well-defended. Offshore platforms and ports are vulnerable. Global shipping lanes pass through narrow channels known as chokepoints could be targets (such as the Strait of Hormuz and the Bosporus Straits). Attack on, or interdiction of, a vessel in chokepoints could result in closures or limits on traffic, and thus would seriously impact world energy supply.
Evidently, the Mediterranean oil and gas fields must be protected by a combination of local state security forces and company operators’ private security forces. So regional countries like Israel, Cyprus, Egypt, Greece, Jordan, Turkey and others could partner to analyze risks and find solutions based either on prevention and detection or response and recovery.
G. Conclusion
No doubt that the East Mediterranean gas discoveries provide a golden opportunity for energy security and cooperation, an opportunity that must not be neglected because as it is aptly highlighted in a famous Arabian proverb “three things come not back; the spoken word, the sped arrow, and the neglected opportunity”. It is in this spirit that regional countries coordinate policies and share best practices so that the opportunity is not neglected…
[1] Jeffrey Kupfer, «The Link between Israel and America’s Natural Gas Boom”, Fortune (Electronic Magazine), December 12, 2014
[2] Noble Energy, “Noble Energy Announces Agreement to Sell Tamar Gas to Multiple Customers in Jordan”, February 19, 2014. Acessed at: http://investors.nobleenergyinc.com/releasedetail.cfm?ReleaseID=826568
[3] Reuters, “Israel Gas Field Partners Sign LOI on Exports to Egypt LNG Plants”, May 6, 2014
[4] Matthew Bryza, “Build a Turkey-Israel Pipeline to Bring Stability”, The Japan Times (English Daily), January 26, 2014
[5] Sharon Udasin, “Palestinian Power Company Nixing Leviathan Gas Import Deal”, Jerusalem Post (Israeli Daily), November 3rd, 2015.
[6] “Leviathan Field Monopoly is Focus of Israel’s Anti-Trust Regulator”, Oil & Gas 360, Janhuary 5, 2015. Accessed at: http://www.oilandgas360.com/leviathan-field-monopoly-focus-israels-anti-trust-regulator/
[8] Orr Hirschauge and Rory Jones, “Israel’s Supreme Court Rules Against Offshore Gas Deal”, The Wall Street Journal, March 27, 2016.
[11] Elias Hazou, “Oilfield Services Leaders to Set Up Regional Base in Cyprus”, Cyprus Mail, May 28, 2014.
[12] European Commission (Press release), “State Aid: Commission Approves Agreement between Greece and TAP Allowing New Gas Pipeline to Enter Europe”, Brussels, 3 March 2016.
[13] Reuters, “Greek Fledling Oil Sector Steps Up Production”, January 7, 2016. Accessed at: http://af.reuters.com/article/commoditiesNews/idAFL8N14R2FD20160107
[14] Parliament of Australia, Migration Amendment (Offshore Resources Activity) Repeal Bill 2014;Second Reading. Accessed at: http://www.aph.gov.au/Parliamentary_Business/Hansard/Hansard_Display?bid=chamber/hansardr/6f011bde-9138-44d1-93a9-08f7c4113f58/&sid=0190
[15] Assaf Harel, ‘Preventing Terrorist Attacks on Offshore Platforms: Do States Have Sufficient Legal Tools?’, Harvard National Security Journal, Vol. 4, No. 1, 2013.
[16] Mikhail Kashubsky and Anthony Morrison, Security of Offshore Oil and Gas Facilities: Exclusion Zones and Ships’ Routeing, Australian Journal of Maritime and Ocean Affairs, Vol. 5(1), 2013.
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