Natural Gas Europe has had the pleasure to speak with Dr Tim Boersma, fellow and acting director in the Energy Security and Climate Initiative of the Foreign Policy Program at Brookings. Boersma gave Natural Gas Europe valuable insight on Eastern Mediterranean gas developments and the challenges ahead.
On Cyprus’ development plans
The discovery of the Aphrodite in Block 12 of Cyprus’ Exclusive Economic Zone has triggered a lot of excitement about the finding and the prospects it entails. However, the size of the discovery, albeit sizeable (estimated at 4.54 Tcf), does not validate infrastructure investments in for instance LNG liquefaction capacity that would allow the monetization of Cypriot natural gas and the island’s entry in the export market, explains Boersma.
On Israel’s regulatory hurdles
Next door in Israel, significant gas fields were discovered. The Leviathan and Tamar field hold 22 and 10 Tcf respectively, enough to satisfy Israel’s modest domestic demand for decades and turn the country into a net natural gas exporter. Regulatory hurdles have created major setbacks in the production of the Leviathan. Israel’s Antitrust Authority’s decision to reassess Delek and Noble’s ownership of Israel’s largest fields has created a climate of regulatory uncertainty that poses the risk of pushing away investors and even forcing Noble Energy to withdraw from its presence in Israel altogether. Boersma does not see Noble pulling-out in the immediate future, but he believes that the tension created by the competition regulator has put a strain on its relationship with the Texan company. It is a relatively expensive gas to produce and the right conditions need to be put in place and maintained in order to attract and retain an operation, adds Boersma. It is yet unclear what Mr David Gilo, Israel’s Antitrust Authority’s commissioner, will decide but breaking up the monopoly is a possible outcome. Boersma highlights that a monopoly in itself does not necessarily constitute a problem. The problem generally arises when that monopoly or a dominant market player is not effectively regulated. Closely monitoring and possibly regulating the prices and allowing Delek and Noble to retain their shares in the Leviathan and Tamar could have been a way to deal with the problem, though this has been fiercely debated by the Texan and Israeli companies. Boersma is not very optimistic about the consequences of the dispute but believes that breaking the consortium by forcing a sale of shares will have a negative impact on the investment climate.
On the impact of the Noble/Delek dispute with the regulator on future investments and regional deals
Boersma fears that the ongoing dispute between Israel’s Antitrust Authority and the partners in Israel’s largest offshore fields may deter future investments. The potential delays in the development of the Leviathan could also negatively affect regional deals. Israel has been engaged in talks with its immediate neighbours, namely with Jordan, Egypt and the Palestinian Authority, for the purpose of supplying its energy-hungry surrounding with a cheap and secure flow of natural gas. Fears that production of the Leviathan will be delayed beyond 2018 have led Egypt to explore alternative possibilities such as importing natural gas from neighbouring Cyprus. Egypt and Cyprus recently signed an MOU launching talks over the possibility of an energy cooperation that would involve Egypt purchasing gas from Cyprus’ Aphrodite field. Selling the gas to Egypt would help Cyprus develop its offshore field and even perhaps use Egypt’s unused export terminals to reach far-reaching export markets. Boersma does not believe however that Cyprus replaces Israel in the region given that the quantities of natural gas discovered in Cypriot waters are relatively modest compared to the sizeable discoveries off Israel’s coast. Egypt is undergoing a severe energy crisis, adds Boersma: the demand for natural gas is increasing in Egypt and the country’s declining extraction levels has turned the once natural gas exporter into a net importer of hydrocarbons. Boersma is also cautious about the likelihood of materialisation of the regional deals. Despite various talks around Israel’s strategy to export via pipeline to regional markets, the complicated political relations and the complex geopolitical landscape have rendered the concretisation of the various discussions uncertain. If all the signed memorandums of understanding were an indication, one would think that all countries get along perfectly well. The reality as we know it is much more complex, and it remains to be seen whether states will be able to effectively cooperate and establish a stable investment climate in which long-term natural gas trade can take place.
On the status of the Gaza Marine Field
Since the discovery of the Gaza Marine field in 2000 by BG, no progress has been achieved towards the development of the field. Boersma believes that its development would benefit not only the Palestinians but also Israel, on four levels. First, it would secure an additional revenue stream for the Palestinians estimated anywhere between 2.5 and 7 billion US$ according to the Palestine Investment Fund which would help the Palestinians pay the electricity debt to Israel. Second, it could also potentially introduce competition to the Israeli market if BG or another operator was allowed to sell the gas from the Marine Gaza field in Israel. Third, it would secure additional supplies to balance the system, in particular near Mishor Rotem. And finally, development of Gaza Marine could help ease some of the diplomatic tensions with countries like Egypt and Jordan. Boersma is cautious about a positive development related to the Gaza Marine field given the complicated politics in Israel, and the lack of (particularly, but not exclusively) Israeli leadership that would issue and implement policies to push forward such a project, have infrastructure built, and allow for the Palestinians to reap the benefits of its offshore field.