Too optimistic? Israel’s and Palestine’s gas and oil
Obstacles still block the flow of oil and gas in the eastern Mediterranean
ARE governments of the Levant fooling their people with false promises of an offshore gas bonanza? From the proceeds, Lebanon hopes to fund a bullet train that will end Beirut’s traffic snarl-ups. Across the water, the Cypriot government has equally grandiose plans. By 2020 a vast new complex in Vasilikos, on Cyprus’s southern coast, is supposed to start shipping liquefied natural gas (LNG) to Europe and even Asia, salvaging the country’s finances. Gas reserves, say Cypriot optimists, amount to 96 trillion cubic feet.
Yet most oil analysts say this is all wildly over the top. Even Israel, whose development of offshore gas is most advanced, is unlikely, they reckon, to start exporting large amounts by 2020, as it hopes.
The sceptics say that the main brake is a lack of regional co-operation rather than a shortage of oil and gas. The Americans’ official Geological Survey estimates that from Gaza’s coast to southern Turkey the eastern Mediterranean holds 122 trillion cubic feet of gas, comparable to the reserves of Iraq. But Lebanon’s caretaker government lacks the authority to pass the legislation needed to persuade foreign oil companies to start drilling; a heralded auction is again likely to be delayed. America’s effort to mediate over a disputed maritime boundary between Lebanon and Israel is stalling progress. The civil war in Syria is scaring away big oil companies. And drilling off the Lebanese coast has yet to begin.
It has done so off Cyprus, but estimates of the amount of gas and oil to be found there have been inflated, too. Delek Drilling and Avner Oil, two Israeli firms involved in exploration, say that Aphrodite, Cyprus’s only proven gasfield, has reserves of just 4.1 trillion cubic feet—barely enough to meet long-term local demand.
Oil companies, including Italy’s Eni and France’s Total, may find more gas there. If not, Cyprus’s LNG venture will depend on getting it from elsewhere, perhaps from Israel’s Leviathan field. In any case, Turkey and Cyprus both claim some of the same stretches of water. The Israelis, for their part, have prevented the Palestinians from developing Gaza Marine, a field off the coast of Gaza where BG (formerly British Gas) found gas a decade ago.
Israel, alone, is romping along. It has verified finds of 35 trillion cubic feet, though the recoverable figure may be lower. Noble, an American company that has so far dominated Israel’s production, says that gas from its Tamar field, which began flowing this year, already supplies 45% of the country’s electricity. But development of the much larger Leviathan field, farther west, is slow. Fearing an outcry over the sale of public assets, Israeli ministers have delayed the timetable.
There are other obstacles. Asian buyers, who tend to pay the highest prices, are reluctant for security reasons to ship Israeli gas through the Suez Canal. Turkey, whose energy needs are soaring, might have been an attractive export market for Israel. Construction of a pipeline on the seabed between Turkey and Israel could prove more profitable than an LNG plant, because upfront costs are lower and Turkish gas prices quite high, says Robin Mills, head of consulting at Manaar Energy, an advisory firm in Dubai. But such a pipeline might have to pass through officially recognised Greek Cyprus and the Turkish-ruled north of the island, so an agreement with both would be needed. That will be tricky. An alternative route, under Syrian and Lebanese waters, would be trickier still.
In any case, Israel is loth to strike an export deal with Turkey at a time when that country’s foreign policy has become unpredictable and its prickly prime minister, Recep Tayyip Erdogan, could turn off the tap whenever he feels piqued. An Israel-Cyprus deal could make matters worse. Egypt’s decision to discard a Mubarak-era agreement to supply 40% of Israel’s gas serves as a warning against doing business amid unresolved conflicts. “Without peace with the Palestinians, we can’t sell our gas to Egypt, Jordan, Turkey and—who knows?—maybe even to the Europeans,” says an Israeli former energy minister, Josef Paritzky.
Tangled in red tape and regional disputes, even oil companies in Israel may flag. Woodside Petroleum, an Australian firm with LNG expertise, is still pondering an ambitious plan to build a floating LNG platform. Noble lacks the capacity to go it alone. Few developers will invest without secure long-term contracts. And buyers in Asia, the best market, are banking on getting an alternative deluge of gas from new finds in the United States. Without exports, regional prospects are less sunny. Ploughing billions of dollars into platforms, rigs, offshore pipelines or costly LNG plants is feasible only if drillers are confident of shipping gas to foreign markets.
For the moment, Noble’s investors say they will be happy with smaller pickings. Israel’s government may have underestimated its own country’s demand for natural gas. Its fast-growing population may need more of it as its economy shifts to gas, for instance to power buses. Jordan, though a smaller market, yearns for a more reliable supplier than turbulent Egypt, and could easily be connected to Israel’s system. Noble has already discussed supplying a Jordanian industrial zone near the Sea of Galilee and the potash plant on the Dead Sea. A short pipeline linking the two countries may be online by 2016. Earlier this month the Leviathan partners signed a deal to supply a Palestinians power station in the West Bank city of Jenin with gas from their field.
Egypt, which until 2012 supplied Israel, might also buy Israel’s gas as demand surges. The idle pipeline that used to pump gas from Egypt to Israel through the Sinai peninsula could be used in reverse, were the local Bedouin to resist the temptation to sabotage it yet again. An undersea pipeline to Egypt’s Nile Delta might offer a safer route. Both routes might one day offer links to LNG plants. Jordan is planning a terminal for LNG at Aqaba, its Red Sea port. British diplomats have also been promoting a plan to link Noble’s fields off Israel’s shore to the LNG plants run by two British companies, BG and BP, at Damietta, on Egypt’s Mediterranean coast.
But even these plans may not come to fruition fast. Mr Netanyahu has yet to endorse a second pipeline to northern Israel, which Noble must build if Israel’s domestic needs are to be met. “Without the pipeline,” says an Israeli close to Noble, “Leviathan will not go ahead.”