Sunday, January 16, 2011

Gas In The Eastern Mediterranean: A New Dimension To The Arab – Israeli Conflict

By Walid Khadduri
This commentary was published in al-Hayat on 17/01/2011

Gas discoveries in the eastern Mediterranean have sparked controversy. This is particularly evident from the unfair Israeli conditions placed on the development of the Gaza Marine field in Palestinian waters for instance, as Israel insists that the gas first be routed to Ashkelon an then to Gaza, in order for the Hebrew state to deduct the quantities it requires at the prices that it decides, or to halt/allow gas flow in accordance with Israel’s interim political priorities. Such conditions have prompted British Gas (BG), and its partners, the Investment Fund of the Palestinian Authority and the Consolidated Contractors Company (CCC), which together are developing the Gaza Marine field, to suspend their operations there.

The field was discovered in 2000, 25 kilometers off the coast of Gaza, with estimated gas reserves of 64 trillion cubic feet. It was planned that gas from this field would fuel the Gaza power plant, to replace gas imports from Israel.

Disputes increased in January 2009, when the consortium led by the U.S group Noble Energy and its Israeli partners made large discoveries in the Tamar field, 90 kilometers off the coast of Haifa. The field is estimated to hold approximately 8.4 trillion cubic feet of gas reserves, and consists of three blocks. The primary block of the Tamar field currently under development lies 35 kilometers South of the Lebanese waters. The depth of the wells is approximately 5500 feet (1677 meters) of water, with a total depth of 16,076 feet. The consortium signed an agreement with the Israeli power company to supply the latter with approximately 2.7 billion cubic feet of gas annually over a period of 15 years, starting with the end of 2012. The overall value of the contract is 10 billion dollars. The Tamar field also comprises two small blocks that extend into Lebanese territorial waters.

In early June 2010, the consortium led by Noble Energy group and its Israeli partner Delek Group, announced the discovery of the Leviathan field, which lies 80 kilometers off Haifa port, in the direction of Cypriot waters and close to Lebanese waters. The field is estimated to hold 16 trillion cubic feet of gas reserves.

Gas discoveries in Israeli waters have begun to come to their present fruition after four decades of failing to find hydrocarbons on land, as not even one oil discovery was made there. The cause of these failures was reliance on local oil companies which had limited experience in exploration, and the fact that international oil companies have kept their distance from Israel for fear of Arab boycott.

However, things changed in the 1990s. As a result of the huge discoveries made in Egyptian waters, oil companies started a campaign of exploration in the Eastern Mediterranean. Despite dealing with some record depths in some cases, modern technology has helped tackle this problem. Furthermore, international oil companies benefited from the Camp David agreement, and managed to operate in both Israel and Egypt simultaneously, without fearing the effects of an Arab boycott.

The discovery of the Tamar and Leviathan fields in the last two years has effectively altered the Israeli energy balance. Currently, Israel completely imports all of its energy sources, including oil and natural gas, in addition to coal, which it imports and uses widely in power generation. But now, coal will be replaced by natural gas.

There is a lot of uncertainty surrounding facts about Israeli gas. There is first the issue of the Northern fields, and the possibility that they extend into Lebanese waters. The problem here lies in the fact that maritime borders are not demarcated or agreed upon in advance. In the case of the Tamar field, for example, the primary block is 35 miles south of Lebanese waters, while two small blocks indeed extend into these waters. Moreover, the maps of some of the fields in the Southern waters indicate that they may also extend into Palestinian waters. In addition, drilling and exploration are still in their early stages, especially in the Leviathan field. For this reason, it is not possible to give a clear estimate of the reserves held by the fields, and whether they are confirmed or estimated reserves, or how productive they are. It is also striking that there is a dearth of public information on the quality of the gas- for example on the water content of the gas. As is known, this factor is extremely important for project economics.

The information available also betrays an important, albeit expected, trend, namely, the excessive optimism of local exploration companies, and their approach in estimating reserves, compared to the conservative announcements made by international companies. For instance, local companies avoid mentioning the figures on confirmed reserves, or the productivity of discovered reserves.

Nevertheless, these discoveries have added a new, hitherto unseen dimension to the Arab-Israeli conflict, a fact that can no longer be avoided. This geopolitical dimension is not only limited to the Israeli-Palestinian or Israeli-Lebanese disputes, as is the situation at present, but will also encompass several other Arab countries, particularly those that export natural gas, and especially in the event Israel intends to export to European markets. Indeed, preliminary contacts in this regard have already started; yet another source of gas was made available for gas-thirsty Europe, this time one that overlooks the Mediterranean directly, without the need for pipelines crossing several countries, as it can be exported as liquefied gas.

The current disputes are somewhat old. What is new, however, is the competition over gas markets.

*. Mr. Khadduri is an energy expert

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