The discovery of increasing volumes of natural gas at various locations in the Eastern Mediterranean presents opportunities to exploit a clean domestic energy resource and to reduce imports. However, it also resurrects chronic regional political conflicts.

In the case of the Gaza Strip, the problem is that of Israeli occupation of Palestinian territory, and the attempt to maintain influence and pressure over the occupied Palestinian entity.

The geology of petroleum fields does not recognize political boundaries between states. Under normal political conditions, diplomacy prevails to resolve these conflicts. This is not the case throughout the new petroleum province of the Eastern Mediterranean, which has seen the Israeli occupation of the Gaza Strip, followed by the Israeli marine blockade on Gaza. There have also been legal and financial demands by Israel that, so far, have made it impossible to develop Gaza gas resources.

Further north lies the disputed territory between Lebanon and Israel. This represents a dispute that cannot be negotiated bilaterally, because the two countries are still technically at war, and therefore potential discoveries straddling the border cannot be unitized.

Finally, Turkey has used its occupation of northern Cyprus to assert its interests in Cypriot waters, demanding petroleum royalties on behalf of the Turkish community in the occupied Cypriot territory, and requiring the resolution of the Cyprus conflict in accordance with its own terms. Accordingly, Eastern Mediterranean petroleum discoveries, while offering new economic opportunities, are creating new conflicts and exacerbating old ones.

DISCOVERY OF GAZA MARINE

This article focuses on Palestinian attempts to develop a gas field, Gaza Marine, discovered offshore Gaza.

In 1999, the president of the Palestinian Authority, Yasser ‘Arafat, signed a 25 year exploration licence covering the entire marine area offshore the Gaza Strip with British Gas (BG) – which formed a consortium, acting as operator in which it held 90% equity.

This figure was reduced to 60% as the Athens-based Consolidated Contractors Company (originally a 10% partner) and the Palestinian Investment Fund exercised their options at development sanctions. In 2002, an outline Development Plan was approved by the Palestinian Authority.

BG discovered the Gaza Marine gas field in 2000; it was 17–21 nautical miles off the Gaza coast and had estimated reserves of around one trillion cubic feet (tcf) with high methane. However, the field has not yet been developed.

Meanwhile the US firm Noble Energy, in partnership with Israeli oil companies, made several finds in 2000–04. These were small discoveries, made in southern Israeli waters adjacent to Palestinian waters. These initial discoveries were not sufficient to meet domestic Israeli demand, obliging Israel to import gas. But much larger discoveries (one a giant field) were made in 2009–10 in northern waters (Tamar and the Leviathan fields, as well as others), close to Lebanese and Cypriot waters (see map). These northern discoveries were large enough to provide sufficient gas reserves for Israel to meet domestic consumption and allow for exports.

The Oslo accords, in particular the 1994 Gaza–Jericho Agreement, confirmed by the 1995 Oslo II interim agreement, gave maritime jurisdiction up to 20 nautical miles from the coast to the Palestinian Authority. This allowed fishing, recreational, and economic activities (which includes petroleum exploration and production). The accords also gave Israel the right to forbid maritime traffic within the zone for security reasons.

OBSTACLES TO GAZA MARINE

BG work offshore Gaza encountered several Israeli hurdles soon after the Gaza Marine discovery. First, there were legal objections by the Israeli Yam Thetis consortium, which operates small southern Israeli fields. The consortium petitioned the Israeli government to stop BG from exploring off Gaza, asserting that the Palestinian Authority is not a sovereign entity to benefit from the Law of the Sea Treaty. Second, the 2006 naval blockade of the Gaza Strip made work difficult, if not impossible. Third, the different opinions held by successive Israeli prime ministers on how to deal with Gaza Marine exports led BG to withdraw from negotiations with the Israeli government for the sale of gas to Israel in 2007. In 2008, BG closed its office in Israel.

Prime Minister Ehud Barack initially allowed BG to proceed with drilling. The decision was considered a political gesture, not a legal one that would recognize the well as being under Palestinian Authority jurisdiction.

BG succeeded in making a discovery, Marine-1, in 2000, some 36 km offshore the Gaza coast – three-quarters of the field thus being in Palestinian waters. The company proceeded, with Barack’s approval, to delineate the field and it drilled two further successful wells in 2000, confirming the commerciality of the discovery.

Obstacles and delays were also encountered as a result of Palestinian political developments that delayed negotiations. The discovery of the field was announced in late September 2000, on the eve of the second intifada. This was followed by: Israel’s unilateral redeployment from the Gaza Strip in September 2005; Hamas rule of Gaza since 2006; and Israel’s war against Lebanon in the summer of 2006.

POTENTIAL MARKETS

Not only did negotiations between BG and the Israelis not proceed, but the economics of the project indicated that Palestinian gas consumption was too small (45mn cubic metres or 0.001 tcf annually) to dedicate Gaza Marine production exclusively to the Gaza Strip. Accordingly, BG explored new markets, among them Egypt (where BG was already a big gas player) and Israel (with an annual consumption of 0.04 tcf). Negotiations between BG, the Palestinian Authority, and the Israeli government started as early as 2000. The terms of reference for the talks were the Oslo Accords, with the recognition that Israel needed to import gas, while BG and the Palestinian Authority were seeking a larger market for Gaza Marine gas. In the course of the negotiations, BG offered a larger package, combining gas supplies from Gaza Marine and gas it produces in Egypt, together with gas from an Israeli field near Ashkelon. The gas was to be sold to the state-owned Israeli Electric Corporation (IEC).

However, the proposal encountered several challenges, including one from the Yam Thetis consortium (three Israeli firms with the US Samedan Oil Corporation) which was also proposing a long-term supply contract to Israel. The second was from East Mediterranean Gas (EMG), owned by the Israeli firm Merhav, the Egyptian General Petroleum Corporation (EGPC), and the Egyptian businessman Husain Salim. The arguments against BG were: BG had no right to drill in Palestinian waters as the Palestinian Authority is not a state and cannot grant such a right to drill in offshore Gaza. Second, BG cannot have a monopoly supply deal with the state-owned IEC.

The Israeli government had its reservations about exporting gas directly to the Gaza Strip. It wanted to have control over the money that would be at the disposal of the Hamas-led government in Gaza in order ‘not to fund the terrorists’.

Israel demanded that the pipeline from the Gaza Marine field had to land at Ashkelon before proceeding to Gaza and that Israel would have the right to lift as much gas as it required. The gas had to be offered at a discounted price – less than that for gas imported by Europe. BG and its partners refused these demands. What has transpired since is that EMG carried influence with the former president of Egypt, Husni Mubarak, and his family. EMG was able to secure Egyptian gas exports to Israel at a considerably reduced price. There was a furore in both the Egyptian parliament and the local media against the low-price formula during the Mubarak regime. Former President Mubarak and his two sons are now being tried because of this deal and other accusations. EMG’s Husain Salim is a fugitive.

Since the overthrow of Mubarak, the export pipeline from al-‘Arish has been bombed several times. Gas exports to Israel ceased as of 2012.

A POSSIBLE FUTURE?

While development of Gaza Marine ceased over a decade ago, the Israeli economic publication Globes reported in March 2013 that development talks between BG and the Israeli authorities – but without the participation of Palestinian representatives – had been taking place for several months. Nonetheless, the field remains shut down and BG has not resumed operations. Meanwhile, the Gaza Strip continues to receive sporadic fuel supplies either from Egypt (smuggled through the currently closed Rafah tunnels) or from Israel.