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Israel faces geopolitical tangle with natural gas



TIA GOLDENBERG,Associated Press

JERUSALEM (AP) — Recent discoveries of massive offshore natural gas deposits, set to begin flowing in the coming days, are turning into a mixed blessing for Israel.

The deposits are expected to provide Israel enough natural gas for decades and transform the country, famously empty of natural resources, into an energy exporter. Yet selling this gas overseas will require Israel to navigate a geo-political quagmire that risks angering allies and enemies alike. Amid this uncertainty, Israel still has not formulated an export policy.

"Instead of being an ingredient which serves to calm the tensions of the eastern Mediterranean, (the discoveries) provide instead another impetus for rivalry," said Simon Henderson, a fellow at the Washington Institute for Near East Policy. "There is a reason this is often called diplomatically trapped gas."

Israel discovered two large fields, Tamar and the heftier Leviathan, in 2009 and 2010. Tamar, which holds an estimated 8.5 trillion cubic feet, is set to begin pumping to the Israeli market in the coming days, while Leviathan, which boasts an estimated 16 to 18 trillion cubic feet of gas, is expected to go online in 2016, the approximate time when exports are expected to begin.

The discoveries are just a portion of the huge reserves in the Levant Basin, which the United States Geological Survey estimated in 2010 holds some 122 trillion cubic feet of recoverable natural gas.

While Israel's finds are minimal compared to gas giants Russia, Iran or Qatar, they are more than enough for the country's domestic needs and would enable the country to reduce its reliance on costlier and dirtier oil and coal. Nearby Cyprus has also become newly resource-rich, and Israel's other neighbors, including enemies, may discover their own deposits.

In all, Israel has just the world's 46th largest supply of proven natural gas reserves, according to the CIA Factbook. But the country's proximity to Middle Eastern and European markets could make it an important regional player. For oil companies hoping to profit from the new wealth, the biggest hurdle remains the lack of an export policy.

"The challenge we face now is ... the failure to decide on export," said Bini Zomer, an official in Israel with Noble Energy, the Texas-based company that has led exploration efforts. "The policymakers seem to lack a sense of urgency."

The challenges are many. Cooperating with Cyprus risks antagonizing Turkey, an important one-time ally whose relations with Israel have greatly cooled in recent years. The neighboring Arab countries Egypt and Jordan might provide opportunity, albeit with some political risk. Europe is a potentially larger and more stable market, but reaching the continent is a logistical challenge and risks angering Russia.

Israel has already broached volatile turf by opening talks with Cyprus. The two countries, whose territorial waters border each other, are looking into how best to jointly exploit their mineral reserves. One option is to pipe the gas to Cyprus, where it could be processed for export to Europe and beyond.

The gas discoveries have helped to warm historically chilly ties with Cyprus, which has traditionally sided with the Palestinians and has looked on warily as Israel built military and trade relations with rival Turkey.

Israel's ties with Ankara deteriorated dramatically over the past three years since an Israeli naval raid on a Gaza-bound flotilla killed nine Turkish activists. The cooperation with Cyprus has further angered Turkey, which has claimed some of Cyprus' offshore supplies as its own.

Israel and Turkey announced last week that they were restoring full diplomatic relations after Israel apologized for the flotilla deaths. But relations remain cool and it remains unclear how Israel's links to Cyprus will shape up.

The Israel-Turkey rapprochement is on the minds of Cypriot authorities as future gas revenues are seen as the country's best hope to pull it out of the economic morass that has decimated its banking sector.

"I assure you that we are monitoring the situation and we will act accordingly to protect the country's sovereign rights," Cyprus' Commerce Minister Giorgos Lakkotrypis recently said. He said the country's president, Nicos Anastasiades, is planning a trip to Israel to discuss energy cooperation matters.

Cyprus has looked to Israel to pool their respective gas finds in order to build a gas processing facility on the island that could be used to supply domestic demand and liquefy it for export.

Experts say the most obvious route to Europe from Israel would be through Cyprus, then to Turkey, but those traditional enmities could block such a solution. Cyprus fears that Israel may instead opt to sign a deal to pipe its excess gas to Turkey directly via a pipeline in order to reach European markets.

Brenda Shaffer, an expert on natural gas at Israel's Haifa University, noted that the renewed alliance opens the door to cooperation with Turkey, a large market and rising player on the global stage.

"Cyprus can never replace Turkey in terms of geopolitical value for Israel," she said.

Meanwhile, entering the European market risks placing Israel at odds with Russia, a natural gas juggernaut that supplies much of Europe. Russian energy giant Gazprom has shown interest in working with the consortium drilling off Israel's coast, which observers say may reflect a desire to ensure a role in the region's gas projects.

There are more challenges closer to home. The maritime border between enemies Lebanon and Israel is disputed. Although it appears no major gas sits in the contentious area, tensions have flared over the disagreement. The Hezbollah militant group, which battled Israel to a stalemate during a monthlong war in 2006, has threatened to use force to protect what it says is Lebanon's natural wealth.

Any infrastructure Israel builds is vulnerable to attacks from the myriad militant groups in Egypt, the Gaza Strip and Lebanon. Sending gas to a processing plant in Egypt, one of the many ideas floated, is contingent upon whether the tenuous peace agreement between Israel and Egypt remains intact. Egypt's own gas exports to Israel have ground to a halt following more than a dozen pipeline attacks by militants in Egypt's Sinai desert.

But some opportunities are at hand. No longer reliant on Egypt, Israel will have a stable source of energy, along with a chance to strengthen ties with its neighbors by providing clean energy that is cheaper than oil.

An official from Israel's Energy Ministry said the government has "an interest" in providing energy to Jordan and the Palestinians. He spoke on condition of anonymity because the government has not made any firm decisions.

Jordan, in particular, makes sense for Israel. Jordan signed a peace agreement with Israel in 1994, and new commercial ties would help cement that peace.

Jordan, which has also seen its gas supplies disrupted by the repeated pipeline attacks in Egypt, would also benefit from a stable source of energy. These disruptions from Egypt have forced Jordan to use oil to fuel its electric plants.

A Jordanian government official said Jordan would be interested in Israeli gas "if it's cheap." He spoke on condition of anonymity because no decisions have been made.

Although Israel has a head start, it has yet to determine how much of its gas will be sold abroad, how to ship it overseas and which markets it may serve.

A 2012 inter-ministerial report recommended that Israel preserve enough gas for itself for a 25-year period, leaving just over half of its estimated reserves for potential export. Those recommendations have yet to be adopted, and for now, only deals with Israel's national electricity provider and other local industry are in place.

Once it does forge its export policy, Israel will look to strike a balance between diplomacy and commercial viability.

"Gas is always very political," said Shaffer. "The politics have to support the commercial interests, but if the commercial interests aren't there, the politics aren't enough."


Associated Press writers Menelaos Hadjicostis in Nicosia, Cyprus, Dale Gavlak in Amman, Jordan, and Bassem Mroue in Beirut contributed to this report.

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