Australia/Israel Review, Featured


Israel Energised

Sep 1, 2020 | Jack Gross

Gas production in the Mediterranean is providing diplomatic and strategic opportunites for Israel, as well as economic ones
Gas production in the Mediterranean is providing diplomatic and strategic opportunites for Israel, as well as economic ones

Security and diplomatic implications of Israeli gas production 

 

 

The latest energy news from the Middle East marks an important turning point in Israel’s energy security and diplomatic situation. 

On July 20, American energy company Chevron agreed to purchase Noble Energy, a smaller US-based petroleum and gas company, for US$5 billion (A$7 billion). Noble Energy is the operator of Israel’s largest natural gas field, Leviathan, and has other investments in the eastern Mediterranean. Chevron’s presence in Israel adds legitimacy to Israel’s claim to be a significant energy producer and may attract future investments from other energy companies. The deal also indicates that the eastern Mediterranean gas discoveries are large enough for a giant like Chevron to enter into the region. 

Years ago, no large oil company would have dared to work with Israel over fears of boycotts from oil-producing Arab states. In fact, in 1957 Royal Dutch Shell stopped exporting oil to Israel after Saudi Arabia threatened to cancel contracts with the company if it did not. Now Chevron, which has investments in a number of projects in Saudi Arabia, Kuwait and Iraq, is investing in Israel’s energy economy. A powerhouse like Chevron would never have offered this deal if it feared losing business with its Arab partners. The Chevron deal thus offers an outlook into the changing energy politics of the Middle East, and Israel’s role within that strategic landscape. This article will highlight some of the most important energy developments in the region and how Israel has leveraged its discoveries for diplomatic and security benefits.

New Discoveries, New Opportunities

For years, Israel was an energy importing country surrounded by hostile, energy-rich Arab nations. The tide began to turn in 1999 when Noble Energy and the Israel-based Delek Group discovered the Noa Gas field 40 kilometres off the coast of Ashkelon in the Mediterranean Sea. Since then, more than 840 billion cubic metres of gas have been found off the shores of Israel, the largest deposits being the Tamar and Leviathan gas fields (estimated to be worth more than US$132.65 billion or A$185 billion). The Leviathan gas field became operational on Dec. 31, 2019. There have been other gas fields discovered throughout Israel’s Exclusive Economic Zone (EEZ) in the eastern Mediterranean, as well as in the EEZ of neighbouring Cyprus. The benefits of Israel’s emergence as an energy producer are two-fold: helping to advance diplomatic goals and improving national energy security.

Following the discovery of gas in the eastern Mediterranean there were many debates over whether Israel should implement an export-focused policy or if it should prioritise retaining supplies for domestic use. Dr. Eran Lerman, who served as the deputy director for foreign policy and international affairs at the National Security Council in the Israeli Prime Minister’s Office, argued for an export-focused policy to maximise the benefits of the discoveries. “What drove me, and still does, was a vision of regional integration not unlike what ultimately transpired as the [Eastern Mediterranean Gas Forum] later, and specifically the need to cement the common interests of Israel, Egypt, Jordan, Cyprus and Greece: primarily for strategic reasons – common enemies! – but also in terms of re-defining the multi-coloured East Med, rather than the volatile and largely hostile ‘Middle East’ as our place in the world,” Lerman said.

A primarily export-focused policy has indeed been implemented to strategically leverage Israel’s energy discoveries. Newly developed energy partnerships have strengthened existing relations with regional allies, including Egypt, and become the foundation for new partnerships and forums. Meanwhile, Israel’s emergence as an energy producer has also enhanced regional and national energy security overall. 

Will the EastMed pipeline ever be built?

The European Union is watching with interest the development of Israel’s eastern Mediterranean natural gas fields. Europe-Israel relations remain strong at an economic level, while political relations have been mixed. Currently, many EU member states are dependent on natural gas and other fossil fuels from Russia for their energy needs, giving Moscow potential leverage over European policies. The EU imports approximately 40.1% of its natural gas, 29.8% of its crude oil and 42.3% of its coal from Russia. The EU also imports a considerable amount of liquefied natural gas (LNG) from politically unstable countries, such as Nigeria and Algeria. 

EU-Israeli energy trade could take place in two ways: through a proposed eastern Mediterranean subsea gas pipeline, known as the EastMed pipeline, or via LNG exported by tankers from Egypt. The EastMed pipeline would connect Israel’s energy sector to the European Union and would incorporate EU member Cyprus into the EU natural gas network, a longtime goal of the EU. If investment is secured, the pipeline could be completed by 2025 and would be the longest underwater pipeline in the world. The cost is estimated to be over €5.2 billion (A$11.8 billion). On June 18, Israel, Cyprus and Greece signed an official agreement on building the pipeline. At the signing, Israeli Prime Minister Binyamin Netanyahu referred to the cooperation between the three nations as “a real alliance in the eastern Mediterranean” for diplomatic, security, and economic affairs, and also invited other nations to join the alliance.

While the EastMed pipeline would change the geopolitical landscape of the region, investors reportedly remain sceptical about the feasibility of the deal. Furthermore, the Italian government, one of the project’s expected primary financers, has not signed any agreement or made any commitment to the funding of the project. As things currently stand, it would be difficult to envision the construction of the pipeline anytime soon given its hefty price tag and lack of investors.

EU commitments to reduce greenhouse gas emissions and to increase renewable energy production may also play a role in the planning of the proposed pipeline. Reaching the EU’s renewable energy goals will take large financial investments, so building a multi-billion-dollar pipeline at the same time may not seem like a viable decision.

The EU has certainly made it a goal to diversify European energy imports to release itself from dependence on Russia. However, the natural gas that Israel would be able to provide is insufficient to offer more than a marginal contribution to European domestic demands.

Moreover, innovations in hydro-fracking and the growth of production in the US have brought the price of natural gas down to all-time lows. Energy expert Simon Henderson, Baker Fellow at the Washington Institute, told AIR, “I think the pipeline is unlikely to ever be built. It’s currently dependent not on government approvals, but on commercial viability. Such a pipeline costs 6 to 7 billion [US] dollars to build.” He added that, “the price of natural gas going through the pipeline is not even enough to pay for it and be profitable at the other end.” 

Israel’s energy discoveries will likely have larger impacts in other markets closer to home. 

Eastern Mediterranean Energy Developments

There is much turmoil in the Mediterranean at the moment because Turkey, with help from its Libyan client government, is seeking to overturn the generally accepted distribution of maritime economic zones

Another important landmark in Israel’s emergence as an energy producer is the development of a recognised regional grouping of nations in the eastern Mediterranean. One of Israel’s main interests in the region has been to improve relations with Greece and Cyprus. Israel has long seen the Mediterranean as an attractive region, for coalition building and security, even before energy discoveries provided an additional basis for such cooperation. 

Indeed, regional partnerships amongst Israel, Egypt, Greece, Cyprus, Jordan and Italy ultimately led to the establishment of the Eastern Mediterranean Gas Forum (EMGF). The EMGF foundational charter was signed on Jan. 16, 2020 in Cairo, creating a platform for eastern Mediterranean gas policy discussion and coordination. The forum aims to develop a regional market for energy sales and coordinate the construction of infrastructure. 

The formation of the EMGF is especially important for Israel’s diplomatic strategy. Israel has arguably never before been integrated into a similar small, regional and multilateral forum. Now, Israel is playing a central role in the EMGF as one of the largest regional natural gas producers and a leader in innovation. Israel’s emergence as a vital regional partner correlates with the improvement of its ties to Cyprus and Greece since 2016. 

Representatives from the US and the EU were present at the signing of the EMGF. The US has requested to be a permanent observer of the grouping and France has joined as a permanent member. Israel’s strong relations with Greece and Cyprus also serve Israel very well in improving Jerusalem’s standing politically within the EU.

These nations are linked together by a common interest in the exploitation of natural gas fields, security cooperation, development of a gas market, and most importantly, opposition to Turkish President Recep Tayyip Erdogan’s aggressive behaviour in the eastern Mediterranean, the most significant current threat to eastern Mediterranean security and energy development.

On Nov. 28, 2019, the Turkish Government and Libyan Government of National Accord (GNA) under Prime Minister Fayez al-Sarraj, which is supported by Turkey, signed a memorandum of understanding that established a shared maritime EEZ that purports to create a contiguous maritime boundary that completely traverses the Mediterranean Sea. 

When creating the EEZ, the Turks ignored the existence of the Greek island of Crete, as well as many others. These islands give Greece a strong claim under international maritime law to much of the territory claimed under the new Turkish-Libyan maritime agreement. If legal, the Turkish-Libyan EEZ would give these two countries exclusive rights to precious eastern Mediterranean hydrocarbons and would exclude any other eastern Mediterranean nation from developing infrastructure within the EEZ’s boundary without Turkey’s permission and participation, including the EastMed pipeline. Turkey’s goal in creating this EEZ together with its Libyan client appears to be to block Israel, Egypt, and Cyprus from reaching European natural gas markets without Turkey getting a share of the profits.

To combat the Turkish-Libyan EEZ, on Aug. 6, 2020, Greece and Egypt signed an agreement delineating EEZs in the eastern Mediterranean, which would practically nullify the Libyan-Turkish EEZ. On Aug. 12, the Government of Israel published a statement in support of the Greek-Egyptian agreement.

In direct response to the Greek-Egyptian EEZ, on Aug. 10, Turkish warships escorted the seismic research vessel Oruç Reis to a spot in the eastern Mediterranean claimed by both Greece and Turkey. The following day, Greek Foreign Minister Nikos Dendias announced that Greece would “defend its sovereignty and its rights.” Turkish aggression in energy exploration and development at the expense of its neighbours is raising the risk of Greco-Turkish conflict to the highest level it has been in decades. 

In the charter of the EMGF, the founding member states made it clear that any eastern Mediterranean country with similar goals could join the forum. While currently not a member of the EMGF, if Erdogan’s Turkey were to sign on to the members’ common goals for energy development, Turkey could be invited into the forum. However, the current geopolitical landscape signals that this likely won’t be happening any time soon. 

Egyptian-Israeli Energy Cooperation

Israel’s new energy supplies may have the most impact in Egyptian markets. On Jan. 15, 2020, Egypt agreed to purchase US$19.5 billion (AU$27 billion) of natural gas from the Leviathan and Tamar gas fields. The deal, noted as one of the most important Israel-Egypt agreements since Camp David in 1979, improves both bilateral relations and mutual energy security.

In the early 2000s, the Egyptians also discovered large offshore hydrocarbon fields and made investments in transnational pipelines, two LNG terminals, and energy infrastructure. Since then, Egypt has become one of the region’s largest exporters of LNG. 

Egypt began exporting natural gas to Jordan in 2003 via the Arab Gas Pipeline. An underwater extension of the pipeline that connects el-Arish, Egypt to Ashkelon, Israel was completed in Feb. 2008, after Egypt agreed to supply Israel with 2.1 billion cubic metres of gas per year. By 2010, the new pipeline was supplying Israel with over 40% of its energy needs.

However, following the Arab Spring in 2011, a section of the el-Arish-Ashkelon pipeline was repeatedly blown up, causing temporary gas shortages in Israel. The pipeline ceased operation in 2012 following further explosions and sabotage, as well as gas shortages in Egypt. It still faces similar terror threats as the Sinai Peninsula remains a hotbed for Islamist activity. 

Egypt intends using the Israeli gas it will now be importing both for domestic use and to re-export to the world as LNG. 

Israel’s new energy partnership with Egypt is beneficial to both countries. For Egypt, Israeli natural gas is cheap, readily available, and local, increasing and diversifying Egypt’s gas supplies. On the other hand, Israel is able to export surplus gas and grow its energy economy.

Throughout recent years, Egypt’s insecure energy infrastructure has been subject to terror threats and extreme heat resulting in frequent blackouts. These factors, coupled with one of the fastest population growth rates in the world, puts extreme stress on local power infrastructure. The COVID-19 pandemic has put even more stress on Egypt’s already unstable broader economy. Israel has a national interest in ensuring Egypt’s security and stability, which in turn provides Israel with security and helps with Jerusalem’s drive towards regional cooperation.

According to leading Israeli economics reporter and AIR Israel correspondent Amotz Asa-El, “There is no doubt that the energy relationship between Israel and Egypt has helped pacify the bilateral relations between Jerusalem and Cairo over the decades.” 

Egypt is preoccupied with many other security threats and cannot afford to risk its partnership with Israel. Egypt, Sudan and Ethiopia have been feuding over the Grand Ethiopian Renaissance Dam across the Nile, which could lead to water and nutrient shortages downstream in Egypt. To the west, Egypt faces challenges posed by the patron-client relationship between the GNA Libyan government and Turkey. Egypt needs Israel as a partner for security, intelligence, economic, and now energy cooperation. Israeli-Egyptian ties have thus never been stronger than they are today, and energy cooperation is an important reason why. 

Energy-starved Jordan

Historically, Jordan has experienced similar energy security problems to Israel. Jordan has been dependent on energy imports to meet domestic demand. According to the US Energy Information Administration, Jordan’s energy imports meet 90% of domestic demand and make up over 40% of the country’s annual budget. A large portion of Jordanian natural gas imports come from Egypt via the Arab Gas Pipeline. On many occasions, natural gas supply from Egypt has been cut off due to pipeline disruptions.

In September 2016, Jordan’s National Electric Power Company (NEPCO) signed an agreement with Noble Energy to purchase US$10 billion (AU$14 billion) worth of natural gas. The first pipeline was constructed in 2017 around the Sodom area near the Dead Sea, aiming to supply private customers with gas from the Tamar field. A second pipeline from Beit She’an will provide NEPCO with gas from the Leviathan field. Jordan received its first supplies of Israeli natural gas in January this year.

Asa-El told AIR, “Recent development absolutely fortifies the quiet but significant economic relationship between Israel and Jordan as a dimension to their relationship, but until now has been mainly about Israel supplying Jordan with water and Israeli firms creating low-tech jobs in Jordan and now a very important energy development.”

As expected, there has been heavy pushback from the Jordanian public against the energy agreement. Publicly, Jordanians have been very critical of the energy deal, as well as any cooperation with the Jewish state. However, on the ground and behind the scenes, the neighbours cooperate on a number of issues and Israel is a vital partner to Jordan. Simon Henderson noted that “Israeli gas provides a foundation for the Jordanian economy and it is also useful in diplomatic terms as it binds Israel and Jordan together.” 

Border Disputes with Lebanon

Israeli offshore natural gas development is challenged by Hezbollah, the Iranian proxy terror group that dominates Lebanon. 

For decades, Lebanon and Israel have been disputing an 860 square kilometre triangle of water, based on different claims concerning the angle of the maritime boundary from the coast. The maritime boundary dispute gained more significance in 2009 when major natural gas fields were discovered between Israel and Cyprus. The contested territory, which is expected to contain valuable natural gas supplies, could help jumpstart Lebanon’s devastated economy or further expand Israel’s energy development portfolio. 

However, after years of little progress even with US mediation, recent reports indicate that Lebanon may today be willing to resolve the boundary dispute in line with previous compromises proposed by the US. The devastating explosion at Beirut Port on Aug. 4 left Lebanon in disarray. Thousands took to the streets to protest the deteriorating living conditions in Lebanon and the corruption of the ruling elite. In response to the protests, Lebanese leaders including President Michel Aoun have expressed eagerness to finally put an end to the conflict. Energy discoveries could be critical to supporting the crippled Lebanese economy, but there could be trouble moving ahead with exploiting these as long as the maritime boundary is disputed.

Terror Threats

When analyzing Israeli energy policy and infrastructure, it’s imperative to mention the many terror threats that complicate the picture. Today, nearly every inch of Israel is vulnerable to rocket threats from terrorists in Lebanon, Gaza or Syria, including offshore energy infrastructure. According to Henderson, “for Israel there’s the additional complication which they don’t particularly want to talk about publicly … any such structure whether onshore or offshore is vulnerable to military action or terrorist action from Gaza or the south of Lebanon. Any part of Israel is within rocket range of hostile forces. Such missiles at one point had bad accuracy, but these days they have greater accuracy.”

Israel also faces cyber threats that could heavily disrupt energy production, refining and transportation. 

To counter this threat, Israel has invested millions of dollars in protecting vulnerable infrastructure with navy vessels and private guards. Israel’s Iron Dome missile defence system has also been proven to be successful in intercepting projectiles over water. 

Conclusion

Israel’s diplomatic achievements through its natural gas discoveries are part of a larger campaign to normalise and improve relations with its neighbours. Most recently, on Aug. 13, the United Arab Emirates (UAE) became the third Arab state and the first Gulf state to normalise relations with Israel. The landmark peace agreement, called the Abraham Accords, has been followed by reported talks of peace negotiations with Bahrain, Oman, and Sudan. 

This new development marks a milestone in a very important shift in regional power dynamics, in which most Sunni Arab states view Iran and its many proxies as a greater threat to regional and national security than Israel – which is increasingly seen as potentially a valuable ally. 

Political developments within the Mediterranean also reflect trends taking place across the region toward rethinking traditional enmity with Israel and looking at mutual interests that may be shared with the Jewish state. The potential for energy cooperation, on top of security and economic benefits, is certainly an important contributor to that rethink. Israel has leveraged its energy discoveries to advance its standing within the eastern Mediterranean through the creation of the EMGF, building strong new partnerships with Greece, Cyprus and Italy, and potentially beyond, and helping to conceive a whole new eastern Mediterranean regional bloc of nations. In addition, new economic partnerships with neighbours Egypt and Jordan are changing historically “cold peaces” with those countries into much more fundamental and stable partnerships. 

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