Gas Fields in The Eastern Mediterranean

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GEOPOLITICAL

HANDBOOKS Israel’s Gas Ambitions are Valid but Challenges Remain Cyprus and Turkey: East Med Gas Aspirations Washington’s Energy Conundrum in Syria Greece: Sky is the Limit to Develop Energy Resources at Regional and National Levels Palestine and Jordan: An Energy Rebound with Hurdles Israel and Cyprus: Untying the Gordian Knot on East Mediterranean Gas Lebanon and Syria: Stuck between a rock and a hard place on natural gas


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GAS FIELDS IN THE EASTERN MEDITERRANEAN: CONFLICTS, CHALLENGES AND OPPORTUNITIES ANTONIA DIMOU

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ANTONIA DIMOU Ms. Antonia Dimou is head of the Middle East Unit at the Institute for Security and Defense Analyses in Athens; an associate at the Center for Strategic Studies, University of Jordan and, the Center for Middle East Development, UCLA. She worked at Majlis El Hassan, the Royal Hashemite Court; and served as advisor to the Foreign and Defense Relations Committee in the Greek Parliament; advisor to the Greek Ministers of National Defense; an expert at the Institute for Defense Analyses and the General Directorate of Industrial Development, Ministry of Defense; and an expert at the Center for Analysis and Planning for Greece's Ministry of Foreign Affairs. She received an IVLP fellowship by the US State Department; a scholarship by the Greek and Jordanian governments; and a Project Interchange fellowship by the AJC.


Gas Fields in The Eastern Mediterranean Conflicts, challenges and opportunities

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, Greece 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. Regional countries are currently at various stages of exploration and development which are however fraught by political risks and policy dilemmas. As this anthology will show, East Mediterranean gas resources can promote cooperation, resolve regional conflicts, and deliver financial benefits. Energy resour ces are particularly examined in the context of their potential contribution to the economic development of Israel, Greece, and Cyprus; the advancement of Jordan and Turkey’s energy security; as well as new prospects for Lebanon, Syria and Palestine.

Political agreements are also deemed as an important prerequisite to gain access to promising natural gas fields in the East Mediterranean. The main challenge however lies on what lasting effects political agreements could have on areas of conflict. Thus cooperation and the creation of interdependency structures are prerequisites to unlock the potential of the region and safeguard the unimpeded flow of future gas production.

A collection of works that originally appeared in Modern Diplomacy, a European Opinion Maker with Hellenic and US Editions, are presented in a way denoting that gas discoveries have the potential not only to transform the energy outlook of individual countries, but also important provide a golden opportunity for energy security. This opportunity must not be neglected because as it is aptly highlighted in an Arabian proverb “three things come not back; the spoken word, the sped arrow, and the neglected opportunity”. It is in this spirit that this anthology urges coordination of energy policies and the sharing of best practices so that the opportunity is not neglected.


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Israel’s Gas Ambitions are Valid but Challenges Remain

The discovery of Israel’s natural gas resources promise important benefits of energy security and economic gains. Israel is a leading country because preparations to extract gas are already at advanced stages despite that its gas fields’ development has proved to be a lengthy process.

Delays are attributed to the fact that the fields’ development is capital intensive and entails risks that unsettle investors. A major risk is the lack of energy transportation infrastructure in Israel. Levia than field partners namely Noble Energy, Avner Oil Exploration, Ratio Oil Exploration and Delek Drilling are likely to develop infrastructure used exclusively by Levia than, blocking out competitors and endangering prospects for future gas discoveries in Israel. In particular, the like lihood that competitors will have to finance their own transportation infrastructure, raises the costs of developing smaller fields at prohibitive levels.

Concurrently, the Israeli Leviathan field’s development, the largest exploration success since December 2010,is capital intensive given that it requires significant investment that will be carried out in two stages: the first stage foresees four development wells with an annual capacity production of 12 billion cubic meters (bcm) of gas, and, the second, four additional wells that would increase production capacity by another 9 bcm. In regional terms, Israel’s efficiency as a gas exporter is significant. This is evidenced by the signing in early 2018 of two agreements valued $15 billion between Leviathan and Tamar fields’ consortium and Egyptian company Dolphinus Holdings for the provision of 64 bcm of gas over a ten-year period. The agreement are expected to produce three benefits. First, Egypt is a viable export market for Israeli gas and will thus generate interest from foreign energy companies to bid for licenses in future Israeli international auction rounds.

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Second, the Israeli government would benefit financially from royalties on sales and taxes on profits. Third, Leviathan partners will secure funding for the field’s development.

Reservations however subsist when it comes to the transportation of Israeli gas to Egypt via the existing pipeline infrastructure in Sinai as terrorist attacks on the pipeline could halt exports from Israel as it happened in 2012. The prospect of terrorism raises the cost of the Israeli fields’ development because of the increased risk premium. It is in this spirit that the construction of a subsea gas pipeline that connects Israel to Egypt could present a safer option. In any case, transportation of Israeli gas to Egypt is not only a milestone in regional gas cooperation, but also supports authentic Israel-Egypt normalization.

On a parallel level, overlapping maritime claims between Israel and Lebanon over a 854-square kilometer maritime boundary carry the risk of escalation. The January 2018 signing of Lebanon’s first exploration and production agreement (EPA) with a consortium of companies led by French Total as operator, and Italian Eni and Russian Novatek as partners signals competition that could evolve into confrontation over energy resources. Undoubtedly, in the absence of mutual diplomatic recognition between Lebanon and Israel, no trans-boundary natural resource sharing initiative can be taken. The consortium’s announcement that no operation within 25 km of the disputed area will happen leaves room for a third party mediation to minimize the risk of armed conflict and to work on reciprocal acceptance of the 2012 American proposal so that consensual and authorized economic activity becomes feasible. Noteworthy, the 2012 American proposal involved division of the disputed area granting Lebanon a larger share with the aim to serve as basis of bilateral discussions and be deposited with the UN.

To fulfill its energy potential, Israel should speedy proceed with the supply of gas pumped directly from the Leviathan and Tamar fields to LNG plants in Egypt as this will benefit both Egypt’s natural gas industry and development of Israeli fields. Israel should also invest in security of its energy supply to refute the notion of insecurity that prevents foreign energy companies from investing in the country’s gas fields. Equally important, risks that concern investors like export sustainability should be addressed by guaranteeing a certain amount of financial recovery though the existing compensation mechanism. A transparent and predictable Israeli regulatory environment for foreign investors and access to external sources of project finance and loan guarantees and production commitments in Israel are important for the development of export oriented gas resources.

Israeli government interference in the form of heavy regulation and bureaucracy is a self-inflicted wound that prevents foreign energy companies from participating in bidding processes. Despite the approval of a revised framework for gas regulation by the Israeli government, the first Israeli bidding process received limited attention taking into account that only a Greek energy company and a consortium of Indian companies participated. Notably, the main outlines of the revised gas regulatory framework included the mandatory sale by Delek Group Ltd, Avner Oil & Gas LP and Delek Drilling LP of all their rights in the Israeli Tanin and Karish fields that are currently owned by Greek Eneregan Oil & Gas Company; and, a stability clause which Unquestionably, decisive steps have to be taken foresees that the Israeli government guarantees by Israel so that a new horizon is revealed; the regulatory stability for ten years. horizon of indigenous energy development.

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Cyprus and Turkey: East Med Gas Aspirations

The discovery of the Egyptian Zohr giant gas field accelerated Cyprus’ declaration of the 3rd International Licensing Round. The geological structures of the Zohr field are similar to the auctioned Cypriot offshore blocks, suggesting the existence of significant gas reserves and exploitable oil deposits. The Zohr field’s expedited development positively affects Cyprus’ initial plans to export gas destined for the domestic market of Egypt, as well as plans for liquefaction at the Idku and Damietta facilities to re-export gas to Europe. A general vote of confidence in the Cyprus EEZ is indicated by the attraction of international majors and the subsequent distributions of various exploration blocks. This includes the awarding of exploration block 6 to the ENI Cyprus Ltd and Total E&P consortium; of exploration block 8 to ENI Cyprus; and, of block 10 to

the consortium of ExxonMobil Exploration & Production Cyprus Ltd and Qatar Petroleum International. ENI’s gas discovery in Block 6 offshore Cyprus with Calypso 1 NFW that could contain more than 230 bcm of gas paves the way for focused exploration leading to successful drillings.

Political tensions however as consequence of the collapse of the Cyprus Peace talks and competing EEZ claims between Cyprus and Turkey can impact negatively regional energy cooperation. The prevention of ENI’s Saipem 12000 drill ship from reaching block 3 southeast of Cyprus by military means highlights not only the exercise of unilateral steps by Turkey as a third country in the Cypriot setting but also the existence of accrued problems related to maritime boundaries and to the United Nations Convention on the Law of the Sea (UNCLOS).

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Various arbitration cases are considered as model for the settlement of competing EEZ claims between Cyprus and Turkey with most prominent “The Philippines arbitration case vs China over South China Sea” or alternatively the Malta-Libya arbitration case on the basis that Turkey is not signatory to the UNCLOS.

Turkey seems to solidly promote its potential as a trading hub, on the basis that the country’s geographic location and growing demand for natural gas- reflected by its annual imports of approximately 48 bcm- qualify it as a trading hub rather than a transit country. The trading hub is envisioned in proximity to the East Mediterranean, the Middle East, and Europe with Turkey at the epicenter.

It is in this context that Turkey promotes policies for turning natural gas into an economic benefit in the form of transit fees and trading facilities and looks into filling the East Mediterranean’s energy infrastructure gap. In fact, Turkey has heavily invested in its energy infrastructure over the last three years to increase daily capacity through two new Floating Storage Regasification Units (FSRU) that are online in south and northwest Turkey; the expansion of the Marmara Ereğlisi LNG Terminal; and, investment in two gas storage facilities in the central Anatolian province of Aksaray and in Istanbul province.

Concurrently, Ankara proceeds with market liberalization and regulatory reform in cooperation with private oil and gas companies; intends to create a reference price to be able to influence the pricing of gas in the region; and, plans to increase oil and gas exploration and production activities so that the country turns into a viable energy hub for Europe.

Electronic trading of natural gas in Turkey’s energy stock market started in April 2018 with expectations centering on the creation of a benchmark price for the market that will contribute to price security empowering Turkey in negotiations of long-term contracts with its suppliers.

It is noteworthy that the normalization of Turkish relations with Russia falls within Ankara’s broader strategy to become a competitive regional market player and a strong transmission system operator. The reason is that Ankara’s emergence as a prominent regional energy player can be achieved through the development of adequate physical entry and exit points for capacity allocation, thus securing diversification of supplies and energy liquidity. Turkey, which imports 98% of its gas, must diversify energy sources but its energy dependence is connected to Russia. It is no secret that long-term energy contracts and a “take-or-pay” clause tie Russia and Turkey together for at least 8 more years. According to the take-or-pay provision, the contract places the danger of worsening energy market conditions on the buyer, by requiring the buyer to always be accountable for the payment of a minimum purchase commitment, thus leaving the seller to deal only with the market price risks.

Pessimism seems to prevail over monetization of East Mediterranean gas due to the lack of sufficient gas quantities available for export and pertaining political obstacles like the Cyprus conflict and cold Israel-Turkey relations. Political tensions can impact negatively regional energy cooperation. For example, it is widely acknowledged that the pipeline project connecting the Israeli Leviathan gas field to the Turkish coast is currently not feasible, as the pipeline’s route would have to cross Cyprus EEZ. Thus, Nicosia would effectively veto the pipeline under its rights as a signatory of the United Nations Convention of the Law of the Sea (UNCLOS).Additionally, in view of Turkey’s worsening relations with European countries and radicalization of its regional policies, Ankara has become increas-

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ingly isolated and therefore it does not currently present an attractive option for transporting gas from Israel, Egypt and Lebanon to third markets like Europe.

It seems that commitment on resolving the Cyprus problem is important and, in the meantime, implementation of concrete confidence building measures such as Track-II diplomacy between Greek and Turkish Cypriots on the fuAdditionally, the declared decision by Turkey to ture use of the East Mediterranean natural gas carry out seismic surveys off Cyprus’s south- resources could invalidate any third country’s western Paphos along with the its intention to meddling in Cyprus. proceed with offshore exploration in the northern part of the island through its state-owned Evidently, the principle of good neighbourly relaTurkish National Oil Company highlight the shift tions should unequivocally commit the East of its focus on exploration efforts to the Mediter- Mediterranean’s littoral countries so that prosranean region. The latest gas discoveries in the perity becomes a shared gain; or otherwise inEast Mediterranean coincide at a time of tension tensified tensions run the risk of trapping the in Turkish-US relations. Turkey so far appears region in a state of persistent stagnation. cautious in not crossing a threshold beyond which Washington would be forced to respond decisively as evidenced by the unimpeded arrival of ExxonMobil’s Med Surveyor and Ocean Investigator to Limassol port. The operation of Exxon Mobil’s chartered research vessels in Cyprus’s southwest coast falls within the American position that Cyprus has the right to develop energy resources within its EEZ.

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Washington’s Energy Conundrum in Syria

Geopolitics of energy dominates the crisis in Syria. Foreign powers continue to battle for control of natural gas resources and the trade routes that bring energy to consumers. The role of energy in expanding the conflict in Syria is crucial but important element is the fact that the Syrian army and the US-backed Syrian Democratic Forces (SDF) have made major gains against ISIS’s hold over lucrative oil wells.

The US leverage over Syria’s oil and gas fields such as the al-Omar and Tanak oil fields through the American supported SDF is a reported reality. Notably, al-Omar is Syria’s largest oil field that produced approximately 30 thousand barrels per day before 2011 when the Syrian crisis erupted, while the Tanak field maintains 150 wells with capacity to produce around40 thousand barrels per day.

This leverage can be used either as a bargaining chip in forthcoming negotiations with the Assad regime for the political future of Syria, or for finding new markets for the Arab country’s energy. The latter can be achieved by supporting the construction of a pipeline that would transfer Syrian energy to either Turkey or Iraq.

Syrian oil controlled by the SDF could be transferred to the Kurdistan Regional Government (KRG) whose existing oil pipeline infrastructure will funnel Syrian energy to the European market. The benefits of this export option will be multifold for American policies in the region as the KRG will gain revenues in the form of royalties that could ease the budget crisis attributed to low oil prices and also fund the fight against the Islamic State (IS).

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The US influence is also strengthened by the SDF’s control of the two largest dams in Syria; the Tabqa dam a 824-MW powerhouse that is a key source for water, agriculture and electricity at Euphrates 25km west of Raqqah and, the Soviet-built dam in western Raqqah. The control towers and stations of both dams have been destroyed, and as consequence, heavy investment is needed for the development and redesigning of these facilities. This presents a golden opportunity for the US not only to implement its advanced technology in the two dams but also to solidify control over vital reservoirs that will grant Washington a major foothold in Syria.

No doubt that the US presence in Syria can be solidified through control and investment over Syria’s oil and gas fields. For example, American investment to restore the Conoco gas plant in eastern Syria currently under the control of the US-supported SDF can prove to be significant as it can produce almost 50 million cubic feet of gas per day. Also critical is the likelihood of American investment in the two cited largest dams that will provide Washington not only control over vital reservoirs but most important bargaining power in future negotiations with the Assad regime. Concurrently, the US can use Syria’s reconstruction as an opportunity to push for stronger governance and transparency in the It has to be noted that the combined capacity of Syrian energy sector. Syria’s two refineries at Banias and Homs is very low due to their significant damage once under The resolution of the Syrian conflict as a prereqthe control of IS. Thus a major investment is re- uisite for the development of the country’s unquired taking into account that neighboring ex- tapped offshore gas resources and for port destinations like Turkey and Iraq lack of attracting foreign investment in the context of refineries that can treat Syrian crude oil with regional energy cooperation is realistically immore than 0.5% sulfur. Reportedly, the only Eu- portant. Because this way, the monopolization ropean country that can receive Syrian crude oil of the Syrian regime by third countries that aim is Germany whose Beta facility is designed to to control the shores of the Mediterranean, and accommodate high-sulfur and high-acid crudes. thereby to establish export plants and control Syria is also a promising zone of natural gas re- natural gas exported to third markets will be serves in the territorial waters off its Mediter- avoided. ranean coast where Russia seeks to maintain investment in the energy sector. This is evi- Unquestionably, conflict resolution is the only denced by the fact that energy giant Gazprom way for the development of Syria’s energy potenhas reportedly taken over the gas exploration tial and for moving towards regional stability. and drilling rights off the Syrian coast from Upon this context, challenges and opportunities Russian state-controlled Soyuzneftegaz, which facing American diplomacy lie ahead. in 2014 signed a 25-year agreement with the Syrian government that concedes exclusive exploration rights in Syria’s Exclusive Economic Zone. Notably, Syria’s offshore blocks 1 and 3 lie in an area contested by Lebanon and therefore a possible dispute between the two countries may impede Damascus from exploring its offshore oil and gas potential.

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Greece: Sky is the Limit to Develop Energy Resources at Regional and National Levels

Greece has emerged as a key gas player in the national and East Mediterranean levels. In the regional setting, the acquisition of Israel’s Karish and Tanin offshore gas fields by a Greek company, Energean Oil & Gas, at the price of $148 million presents a milestone.

The reason lies in that the approval of the Field Development Plan by the Israeli authorities and the securing of sales agreements guarantee the execution of the $1.3 billion investment plan to fully develop the two fields. The contract for the Karish field’s development foresees drilling in three wells in the first quarter of 2019, and the first gas is expected to flow in 2021. Interestingly, Energean Oil & Gas has secured sales agreements of more than 3 bcm of gas annually and has raised almost $1.2 billion of loans to develop the Karish and Tanin fields.

The Greek energy company has notably worked with arranger Morgan Stanley to secure funding from banks and institutional investors; the capital will finance a Floating Production Storage and Offloading Unit to extract natural gas from the two fields, and a pipeline that will transport gas to Israel.Thanks to the acquisition of Israeli fields by Greek Energean Oil & Gas, Israel’s energy market is no longer dominated by a monopoly. The Greek energy company’s presence in the Israeli energy setting is accelerated by the granting of five new exploration licenses as result of Israel’s first offshore licensing round that ended in November 2017. The awarded licenses comprise blocks 12, 21, 22, 23 and 31 thus raising the total number of licenses held by Eneregan Oil & Gas to thirteen, providing upside potential for future growth and complementing the company’s East Mediterranean portfolio.

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In addition to the Greek penetration of the East Mediterranean energy landscape, Athens also seeks to develop its own gas fields in the Ionian Sea and South of Crete. The Greek Ministry of Energy signed a contract with French Total’s JV ,Italian Edison and Hellenic Petroleum (HELPE) securing offshore Block 2, located west of the island of Corfu, as an outcome of the 2014 International Licensing Round. Additional bids that are expected to be evaluated include HELPE with Edison that have established a 50-50 partnership for a Gulf of Patras block; HELPE’s consortium with Total and Exxon Mobil that each hold 40 percent stakes for two offshore blocks south and southwest of Crete; and, HELPE with Spain’s Repsol that each holds 50 percent stakes in an offer submitted for another Ionian Sea block.

Greece envisions reducing dependence on energy imports and increasing public finances through investment incentives and new legislation for onshore and offshore oil and gas exploration and production (E&P). Athens’ interest in the reform of the legal and institutional framework for the safety in offshore exploration and exploitation, including environmental rules, is evidenced in the July 2016 enactment of law 4409 by the Greek parliament that transposed the European Directive 2013/30/EE into national law. Despite the fact that oil and gas exploration and production is a prime strategy for Greece’s economic development, the Greek government has delayed the approval of licenses and permits not only for the onshore licensing round of areas in Southern and Western Greece, but also the second international licensing round that expired in July 2014. This stalling has impeded the opening of new licensing rounds.

No doubt that, there are certain preconditions for Greece to become an energy producer, namely delineation of the Greek EEZ with neighboring countries; a comprehensive settlement of the Cyprus problem; involvement of foreign energy companies in exploration and production activities as means to help Athens realize the potential of its hydrocarbon resources; and, the alleviation of financial risks by the EU through project finance from the European Investment Bank.

On grounds of investment decisions based on commercial viability, the European Bank for Reconstruction and Development previously funded with two subordinated loans valued at 95 million dollars the Greek Energean Oil & Gas to expand exploration activities in the Greek Prinos field with fifteen new drills scheduled for 2015-2017. That said, there cent decision by Energean Oil & Gasto farm out a 60% interest to Spain’s Repsol for its onshore blocks in Western Greece was driven by the Spanish company’s expertise in conducting a geophysics campaign to process 400km during 2019 that can lead to new discoveries.

In the existence of significant exploitable hydrocarbons, Greece will get tangible benefits for the Greek national economy and the local Greek communities. But to enhance the energy exploration and development process at the national level, Greece should motivate foreign companies to get involved in oil and gas exploration and production activities and partnerships in the country as a means of helping Greek energy companies build knowledge and capacity. The launching of new tenders for exploration and production of hydrocarbons will undoubtedly provide new opportunities for domestic and international companies to work together to create jobs in Greece.

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This presupposes the enhancement of a stable and secure environment for doing business, i.e. granting licenses and permits on time, transparency in tenders, and evaluation of bids processes. Also critical is the advancement of plans to supply American liquefied natural gas (LNG) to the Balkans, through the Greek Revithoussa LNG Terminal that not only will establish the US as an alternative source of supply but will also bolster Greece’s geostrategic stand.

At regional levels, Greece should enhance cooperation with Israel on joint development of regional infrastructure for the transportation and marketing of gas, like the East Mediterranean pipeline as a potential route for Israeli gas to Europe, via Cyprus, Crete, continental Greece and Italy. Equal important is the speeding up of plans for the construction of the Floating Storage Regasification Unit (FSRU) near Alexandroupolis in Northern Greece, as it will provide an additional entry point for LNG to the Balkans and Europe. Unquestionably, Greece is a uniquely positioned country that can transport energy from the East Mediterranean to Europe and a critical player in developing indigenous and regional gas fields. For the country to advance its multiple energy roles, sky is the limit.

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Palestine and Jordan: An Energy Rebound with Hurdles

Significant gas discoveries in the East Mediterranean over the Gaza marine field can favor economic synergies between Palestine and Israel as well as Palestine and Jordan paving the way towards the multilateralization of energy resources on demand and supply patterns. At the same time, neighboring Jordan that suffers from energy shortage deploys a strategy of developing own resources with the use of renewables and of diversifying gas supply from offshore fields in the East Mediterranean.

The Palestinian Gaza Marine gas field, one of the first regional discoveries back in 2000, with an estimated 32 billion cubic meters (bcm) remains untapped despite its location close to the shore. The field’s new operator, the Royal Dutch Shell, estimates that its development is impeded by low oil and gas prices.

For a breakthrough in the field’s development that requires a moderate investment of approximately $500 million, financial support could derive from international financial institutions like the World Bank’s Partnership for Infrastructure Development Multi-Donor Trust Fund or the American Overseas Investment Private Corporation (OPIC). The value of American financial support in the field’s development is two-fold as it can help address Palestinian development challenges and concurrently advance U.S. foreign policy priorities.

The exploitation of the Gaza marine gas field estimated to contain approximately 1 trillion cubic feet (tcf) would help generate revenues, offer a domestic source for water desalination and electricity generation, and prioritize exports to neighboring counties like Jordan.

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Notably, in implementation of its strategy to diversify energy sources of supply, Jordan has signed a Letter of Intent (LOI) to import 1.5-1.8 bcm per year from the Palestinian field via a pipeline across Israel. The field’s development prospects are still hindered by security and political obstacles. Discussions between the Palestinian Investment Fund (PIF) that holds 17.5% of the field’s development rights, Royal Dutch Shell that owns 55% and Consolidated Contractors Company that holds 27.5% continue and center on the city of Jenin that is interested in buying the gas. Discussions also revolve on the sale of gas to the Egyptian power station in the city of al-Arish in northern Sinai to feed with electricity Gaza Strip. Plans for the development of the Gaza marine field involve the construction of well-heads on the sea-bed, and a sub-sea pipeline from the field to the shore, making landfall at the coastal Israeli city of Ashkelon. The construction of a receiving terminal in Ashkelon could facilitate the transfer of Palestinian gas into Israel’s natural gas main network across the country. Reservations however remain over the feasibility of carrying Palestinian energy to the Israeli gas main network because for the construction of pipelines not only prior approval has to be secured by an Israeli company in charge of all underground pipelines but also compensation has to be paid to privately owned land.

A pessimistic outlook prevails when it comes to the development of the Rantis oil project in the West Bank as due to high political risks, only one offer was received that did not meet the technical or financial conditions of the tender issued in 2014. To ensure the development of the oil project, the Palestinian Authority considers the establishment of a Fund to attract international operators.

To overcome difficulties, the Palestinian Authority should support the development of the Rantis Oil project in the West Bank that will generate an independent source of revenues in the form of taxes and royalties, and will promote energy independence through reliance on indigenous resources. In the same spirit, the Palestinians should encourage the development of the Gaza marine field to transit gas either via a sub-sea pipeline to Ashkelon in Israel or to Al-Arish in Egypt for Gaza’s Power plant providing the Palestinian Authority with greater security of supply, and to alleviate the critical shortage of water in the Palestinian Territories. The Palestinian economy will undoubtedly benefit from the conversion of diesel-fired power plants into gasfired. Equally important, gas cooperation with Israel could create a precedent which could be used as incentive for peaceful co-existence between Palestine and Israel.

Coming to Jordan, 90% of the kingdom’s energy requirements depend on imports. The growing number of refugees from Iraq and Syria further increase energy demand, which burdens Jordan’s public finances. In search of diversifying sources of energy supply, the kingdom has explored various options, including oil and gas pipelines from Iraq; participation in the development of a gas network for the purchase of energy from Cyprus; and importing gas from regional suppliers such as Qatar and the UAE through the second liquefied natural gas (LNG) terminal in Aqaba. Through research institutions, Jordan also works with scientists, NGOs and the private sector to strategize regional energy cooperation and long-term planning; emphasis is placed on the socially just distribution of revenues, addressing environmental impacts of oil and gas exploration, the establishment of national monitoring systems, and improvement of legal frameworks.

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At a time of regional instability, many believe that natural gas from Israeli offshore fields in the Mediterranean Sea is a reliable source of energy for Jordan despite popular opposition to reliance on Israel. The export of gas from Israel’s Tamar field has started to Jordan’s Arab Potash and Jordan Bromine companies that are connected to Israel’s national pipeline network in accordance with the 15-year, 500 million dollars agreement signed three years ago. Political circles in Jordan believe that Amman should renegotiate the price of gas that is imported from Israel because a Greek company, Energean Oil and Gas, that recently entered the Israeli market as operator and developer of Kanin and Tarish gas fields has managed to lower the price of gas by 20% compared to the price that the partners of Tamar and Leviathan fields offer to companies.

The development of gas resources in terms of financing, revenue sharing and political relations between neighboring countries is a prime challenge. But incentives definitely overcome challenges as all have an interest in ensuring that energy discoveries are developed for the wellbeing of the whole region.

Other energy options for electricity generation, though even if successful, cannot substitute reliance on gas involve the development of renewable energy resources that has been at the forefront of Jordan’s strategy to reduce dependence on hydrocarbons with projects like the Green Corridor designed to support the national electricity network.

To diversify gas supply sources, the government of Jordan should continue to discuss the option of transferring gas from Cyprus, either through Israel, which needs to be viewed as a natural transit country, or through Egypt. The transfer can be done either by pipeline or as LNG, though the latter is less viable due to the short distance from the Egyptian shore to the kingdom. Additionally, international banking and financial institutions like the World Bank and American development agencies like USAID could provide loans or grants to help the kingdom make the transition to renewable energy.

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Israel and Cyprus: Untying the Gordian Knot on East Mediterranean Gas

Gas exploration and drilling activities in Israeli and Cypriot waters along with licensing rounds for blocks near the super-giant Zohr gas field raise the likelihood for large gas discoveries in the East Mediterranean. Israel and Cyprus speed up efforts for the development of energy resources to be primarily channeled to Europe. Europe is considered as prime export destination for regional supplies of liquefied natural gas given that the continent is seeking to enhance energy supply and transit security.

Israel seems to be taking two steps forward and one step back on natural gas. A renewed Israeli gas regulation framework has portended a competitive market as new companies acquire offshore drilling rights.It is in this context that a Greek company, Energean Oil and Gas has

secured full ownership of Israeli Karish and Tanin gas fields at the price of 148 million dollars aiming to deliver 88 billion cubic meters (bcm) of natural gas to the Israeli market in the next forty years. The Greek company has submitted a field development plan to the Israeli government and secured sales agreements for more than 3 bcm annually at a 20 percent price discount compared to Leviathan partners’ pricing to Israeli power provider Dalia Power Energies and its sister company Or Power Energies. This arrangement has set the stage for competition that will benefit consumers and the Israeli economy. Reservations however are high over the smooth development of the Leviathan gas field due to the fact that the field’s partners – Noble Energy, Avner Oil Exploration, Ratio Oil Exploration and Delek

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Drilling – abandoned initial plans at the first stage of development to build a floating offshore platform over the field’s wells thus narrowing gas exports to Jordan, the Palestinian Authority and the domestic Israeli market. No doubt that prospects for the field’s first stage development are benefited by the $10 billion contract signed between Leviathan gas field partners and Jordan’s National Electric Power Company to sell gas to the latter for the next fifteen years.

A prime challenge is that Leviathan field partners are likely to develop transportation infrastructure that will be used exclusively by Leviathan blocking out competitors and endangering prospects for future gas discoveries in Israel. The reason is that without Leviathan’s economies of scale, competitors will have to finance their own transportation infrastructure thus raising at prohibitive levels the costs of developing smaller fields. An additional challenge is related to the new Egyptian legislation, called Resolution No. 196 of 2017, that foresees the establishment of a gas regulatory authority and permits private companies to import gas from third countries like Israel. Despite the new legislation, the likelihood for direct export of Israeli gas to Egypt is minimal because of the Egyptian government’s position that gas agreements with Israel can proceed only if the latter’s companies withdraw from arbitration that has ordered Egypt to pay 3 billion dollars in compensation for losses sustained when gas supplies to Israel halted in 2012.

To overcome current challenges, Israel should urge the joint use of Israeli Leviathan field’s transportation infrastructure or alternatively support the development of joint national infrastructure to overcome prohibitively high costs associated with developing smaller fields in Israel like the Dalit and the Simshon gas fields. The Israeli government should also address risks that worry investors like force majeure and export sustainability by guaranteeing a certain amount of financial recovery though the existing compensation mechanism.

In search of commercially viable levels of hydrocarbon resources, Cyprus possesses a central position in the regional setting. Nicosia’s 3rd international licensing round for three blocks within its Exclusive Economic Zone (EEZ) resulted in the awarding of licenses to Italian ENI and French Total for Block 6; ENI for block 8; and, American Exxon Mobil and Qatar Petroleum for block 10. Notably, the attraction of international majors and the subsequent awarding of exploration blocks signal a vote of confidence in the island’s EEZ. The July drilling in block 11 that was commissioned to Total and ENI in the 2nd licensing round has been critical as first results show that the geology of Egypt’s Zohr gas field extends into Cyprus’s EEZ. This assessment raises expectations for the findings of the two drillings scheduled for the second half of 2018 in block 10 that lies in close proximity to the super-giant Zohr field. It is estimated that oil majors’ plans center on connecting gas discoveries in Cyprus with Egypt’s by pipeline and re-export reserves as liquefied natural gas by utilizing the Egyptian Idku and Damietta LNG facilities.

There is widespread belief that political tensions as consequence of the collapse of the Cyprus Peace talks and competing EEZ claims between Cyprus and Turkey can impact negatively regional energy cooperation. The resolution of the Cyprus conflict is viewed by many as prerequisite for the construction of a pipeline that would connect Israeli Leviathan field to the Turkish coast given that the pipeline will have to cross through the island’s EEZ.

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Gas can remain under-developed for years to come if challenges are not properly addressed by Israel and Cyprus. To unleash the full potential of their wealth, consultation between Tel Aviv and Nicosia could allow a coordinated development of fields due to their close geographic proximity given that international investors long for a stable political environment for capital-intensive projects to proceed. Making the best use of existing underused export infrastructure with The development of energy resources is a de- a number of promising fields in both Israel and manding process thus the government of Cyprus can be the key to unlocking the region’s Cyprus should support the joint monetization of energy potential. Cypriot and Egyptian gas on the basis that economies of scale reinforce profitability and produce higher government revenues; and, pass legislation that foresees establishment of a National Investments Fund where revenues from hydrocarbon exploitation will be deposited for the benefit of Greek Cypriots and Turkish Cypriots.

A number of energy experts insist that “the Philippines arbitration case vs China over South China Sea” can serve as model for the settlement of competing EEZ claims between Cyprus and Turkey, while others consider the MaltaLibya arbitration case as more appropriate given that Turkey is not signatory to the United Nations Convention on the Law of the Sea (UNCLOS).

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Lebanon and Syria: Stuck between a rock and a hard place on natural gas

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The East Mediterranean’s gas resources can promote cooperation, resolve conflicts and turn the region into an energy hub presenting new prospects for Lebanon and Syria. Lebanon is currently in need to diversify its energy mix away from oil in order to strengthen its security of supply but lags behind neighboring Israel and Cyprus in developing its gas reserves in the East Mediterranean. 3D seismic surveys carried out by the Norwegian Spectrum company have estimated recoverable Lebanese offshore gas reserves at 25.4 trillion cubic feet. The development of Lebanon’s hydrocarbon resources nevertheless faces significant challenges at political and economic levels, namely the skyrocketing public debt, an unstable regulatory framework, and a weak administration attributable to the sectarian nature of the country’s political system.

The January 4th 2017 approval by the Lebanese cabinet of two decrees is considered critical to ignite the engines of gas exploration and production given that they provide the delineation of the offshore area into 10 blocks; the establishment of production-sharing contracts; the specification of tender protocols; and, the model exploration and production agreement (EPA) so that the first licensing round for offshore gas exploration becomes feasible and Lebanon catches up energy synergies in the East Mediterranean.

The commercial attractiveness of Lebanon’s gas resources is evidenced in the registration of interest by twelve operators and major oil companies such as Chevron, ExxonMobil, Shell, and Total in the prequalification round of 2013.

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GEOPOLITICAL HANDBOOKS Also interestingly, delays in the Lebanese decision making process can close market-transformative opportunities, hinder joint monetization with Egypt and possibly Cyprus, and accelerate competition with new entrants in the regional gas market, such as Iran and Australia. For the conclusion of long-term gas supply contracts, the discovery of sufficient gas quantities in the ten blocks of the Lebanese maritime area is important. This is especially crucial when taking into account that by the time Lebanon comes on stream, a major gas market share will be locked up, thus limiting the Arab country’s ability to create gas price competition. No doubt that in the existence of a compact regulatory framework But two main prerequisites are critical for the and a strong political leadership, regional energy transformation of the Arab country into a gas arrangements will not likely bypass Lebanon. producer. First, the Lebanese government needs to be held accountable and push for effective Coming to neighboring war-torn Syria, the counpublic consultation in that the bidding process try can prove to be a significant regional energy is transparent and that contracts are sufficiently player. Damascus overall undiscovered gas pocompleted. Second, anti-corruption safeguards tential looks promising in accordance with for the gas industry in Lebanon are necessary to French CGG Veritas’ acquisition of 2D seismic be created to standardize binding rules for li- data on offshore Syrian resources in 2005 and censes and contracts with: (a) penalties on com- subsequent 2011 evaluation that three offshore panies which provenly secure contracts through blocks in the Mediterranean Sea by the Syrian bribery; and, (b) the ability of companies to ex- coast are expected to hold multi trillion cubic ercise supervision over one another for compet- feet of gas. itive reasons. Anti-corruption mechanisms can also include the creation of sovereign funds that Among various interests, geopolitics of energy take part of the gas profits and allocate them to seem to dominate the crisis in Syria. Foreign the development of infrastructure projects and powers battle control of natural gas resources to the decrease of national public debt thus fa- and the trade routes that bring energy to convoring economic growth. sumers. Conflicting energy interests in Syria are demonstrated by Russia, Qatar and Iran. Russia On a broader regional setting, existing overlap- seeks to maintain investments in the energy ping maritime claims between Lebanon and Is- sector in so-called “Safe Syria,” which is a promrael over an 854 square kilometers area are ising zone of natural gas reserves in the territohampering trans-boundary gas sharing initia- rial waters off Syria’s Mediterranean coast. The tives on exploration and production. American significance that Russia attributes to joining the mediation efforts thus far have failed to resolve East Mediterranean energy game is underlined the maritime dispute but reduced the risk of es- by the fact that energy giant Gazprom has recalation by succeeding in dispiriting Lebanon portedly taken over the gas exploration and and Israel from exploring gas fields and award- drilling rights off the Syrian coast from Russian ing contracts. The delineation of the maritime state-controlled Soyuzneftegaz, which in 2014 border is notably crucial for gas exploration signed a 25-year agreement with the Syrian govgiven that oil and gas companies assess secu- ernment that concedes exclusive exploration rity and political risks before investing. rights in Syria’s EEZ.

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Qatar’s energy agenda in Syria contradicts Russian and Iranian interests as it includes a pipeline that would connect Qatar and Turkey through Syria, in order to join the Nabucco pipeline and ultimately reach Europe. For its part, Iran’s energy strategy centers on the Iran-Iraq-Syria Islamic pipeline project, originally signed in 2011. The project is intended to transport Iranian gas through the Gulf to Iraq, then to Syrian and Lebanese ports, with Europe as the final destination.

The “pipelization” of Syria is a reported reality. Thus all efforts should direct to the resolution of the Syrian conflict as a prerequisite not only for the development of the country’s untapped offshore gas resources but most significant for attracting foreign investment.

No doubt that as the cases of Lebanon and Syria show, potent decision making, cooperation and conflict resolution are critical for the region’s gas potential to be unlocked in a way that promotes economic growth and sustainable development Noteworthy, Syria contains a number of gas for the benefit of current and future generations. fields that have been periodically seized by the Islamic State, principally in Palmyra, a city that serves as transit for pipelines carrying gas from fields in Hasakah and Deir Ezzor provinces in northeastern and eastern Syria respectively. The regime’s control of Shaer field, the largest field northwest of Palmyra that feeds the national grid, is considered significant because it impedes the Islamic State from amassing further disproportionate rewards compared to its limited investment of combat manpower.

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