Netanyahu is turning Israel into a major stakeholder on the gas market

There wasn’t much reporting of the fact that in early January Israel, Greece and Cyprus signed an agreement for a huge pipeline project which will deliver gas from the Eastern Mediterranean Sea to Europe. The project continues to expand towards Jordan and Egypt. We are witnessing a paradigm shift not only for the Middle East, but for the entire region, and it is also a change of geostrategic paradigm.

Gas for Europe

Currently Netanyahu has been indicted on charges including bribery, fraud and breach of trust, but some of the accusations are laughable. However, regardless of the outcome, Netanyahu remains one of the most important figures in Israel’s entire history, providing the country not only energy independence, but also turning it into a major producer and exporter in the region.

Netanyahu called the signing of the EastMed (Eastern Mediterranean Agreement) a huge success, as the pipeline will pump billions of cubic meters of gas into Europe.

The 2 000 kilometer EastMed pipeline will be able to transport between 9 and 12 billion cubic meters of gas per year from offshore reserves held by Israel to Cyprus and Greece, and then to Italy and other countries in southeastern Europe.

Prime Minister Benjamin Netanyahu, his Greek counterpart Kyriakos Mitsotakis and Cypriot President Nicos Anastasiades joined the ceremony during which energy ministers signed the Athens agreement. The EastMed project is expected to make the three countries key links in the energy supply chain of Europe. It could also help to combat Turkey’s efforts to expand its control over the Eastern Mediterranean Sea.

EastMed vs. TurkStream

The discovery of hydrocarbon reserves in the Eastern Mediterranean Sea has sparked a new dispute between Cyprus and Turkey – the latter is already facing EU sanctions because of the ships it sent to search for oil and gas off the coasts of Cyprus.

Turkey, as is well known, has completed, almost at the same time the announcement of the MedStream project was made, its own project, carried out in partnership with Russia, TurkStream, which supplies Russian gas to the European space via the southern route. TurkStream will deliver Russian gas to countries such as Bulgaria, Serbia and Hungary, but there are many other options for branching out.

Turkish President Recep Tayyip Erdogan said in November that he was considering joint energy exploration activities with Libya in the Eastern Mediterranean Sea.

Erdogan: Turkey will begin explorations in the Eastern Mediterranean Sea

Turkish President Recep Tayyip Erdogan said that this year his country will start exploring gas deposits in the Eastern Mediterranean Sea.

“We will begin the search and drilling activities as soon as possible in 2020, after the necessary licenses for the areas will be issued,” Erdogan said during a two-hour speech in Ankara.

Erdogan angered neighboring Mediterranean countries with an agreement signed between his country and the government of Tripoli, Libya, in November 2019, offering Turkey exploration rights for vast areas of the sea.

Greece immediately argued that the agreement does not take into account Crete, while Turkey created a commotion in Cyprus, sending ships to search for oil and gas around the divided island.

Erdogan said that “the search and drilling activities of other countries, or a pipeline, are no longer legally possible without the approval of Libya or Turkey.”

Aside from the maritime agreement, Turkey and Libya also signed a security agreement in November, which was followed by the deployment of Turkish military forces in the North African country.

The cost of the installation from the Eastern Mediterranean Sea to Italy is estimated at 6-7 billion euros

The three EastMed governments will open the project for the financing offers of private investors. Countries hope to reach a final investment decision by 2022 and aim to finish the pipeline by 2025. The three governments agreed last year to continue the project, evaluated at around 7 billion USD.

MedStream is expected to initially deliver 10 billion cubic meters of gas annually from Israeli and Cypriot waters to the Greek island of Crete. It will then continue to mainland Greece and link up with Europe’s gas network, reaching Italy.

The rival TurkStream project will transport a maximum of 31.5 billion cubic meters of Russian gas to Turkey annually. Some of the gas will be exported to Europe through Greece. Therefore the EastMed pipeline could compete with TurkStream for the Balkan gas markets.

An Israeli-American consortium has begun pumping gas for Egypt

A consortium of Israeli and American companies begun pumping natural gas from Israel to Egypt after years of uncertainty over the region’s political, security and bureaucratic challenges.

According to the 20 billion USD agreement signed by Noble Energy Inc. – based in Houston and Delek Drilling LP – based in Tel Aviv, 85 billion cubic meters of natural gas will be supplied to Dolphinus Holdings Ltd. in Egypt. The agreement is the first of its kind after the signing of the peace agreement between Israel and Egypt, 40 years ago.

It is expected that Israeli gas pumped into Egypt, beyond meeting local demand, will be liquefied and exported from Egypt to other countries.

In addition, unlike Israel, Egypt also has gas liquefaction facilities, which could turn this country into a regional gas hub.

Offshore Leviathan is the largest energy project in Israel’s history and began production on December 31, 2019, after the government approved the continuation of the project by Noble Energy and its partners, despite protests from the residents of the coastal region of Israel, worried about the pollution caused by the platforms.

Located in the Mediterranean Sea, 125 kilometers west of Haifa, the Leviathan gas field is estimated to hold 22 trillion cubic meters of natural gas and a potential half a million barrels of oil.

The Tamar gas field – Israel’s second largest discovery – began producing gas in 2013 and holds about 10 trillion cubic meters of natural gas, half of the estimated amount in the Leviathan. These two gas fields, along with the smaller ones – Karish and Tanin, which are set to begin production in 2021, represent a stable source of locally produced energy and it can potentially cover all of Israel’s electricity needs for the next 150 years.

Natural gas from the offshore Leviathan gas field for Jordan

Texas-based Noble Energy will pump gas to Jordan for three months, according to the provisions of an 2016 agreement between NEPCO (National Electric Power Co.) Jordan and Noble Energy. The value of the contract is 10 billion USD. Under the agreement Jordan will receive Israeli natural gas for 15 years.

Jordan had already purchased gas from Israel’s Tamar offshore gas field on a smaller scale for almost three years. The amount of gas extracted from both natural gas fields will exceed 85 billion cubic meters, with Leviathan gas production accounting for nearly two thirds.

The value of gas exports is estimated at 19.5 billion USD.

Saudi Arabia would rather buy natural gas from Israelthan Qatar

South Pars / North Dome – located in the Persian Gulf is the largest gas reservoir on Earth and is owned by Iran and Qatar.

Saudi Arabia, however, has been in talks with Israel to buy natural gas. This is an important political signal, as the two countries have no diplomatic ties. Specifically, Saudi Arabia and Israel discussed the construction of a gas pipeline that would link the Saudi kingdom with Eilat, the Israeli port on the Red Sea.

The talks also include connecting Saudi Arabia to Israel’s Eilat-Ashkelon pipeline, allowing the kingdom to export its oil to Europe and other markets, while avoiding the Hormuz Strait, where Saudi Arabia and the United States have blamed Iran for attacks on oil vessels.

Such a project would probably be a real breakthrough in regional policy.

Pipeline to the Gaza Strip

Netanyahu also has plans to build a gas pipeline to the Gaza Strip, which would greatly reduce the Palestinian enclave’s dependence on electricity from external sources.

The Minister of Energy, Yuval Steinitz, called for the project plans to be finalized, the financing of the planning stage being estimated at about 2.8 million USD and will be provided from European sources, probably Dutch.

The news comes amid a long-term ceasefire agreement between Israel and Hamas. The construction of the pipeline is part of the alleged provisions of the agreement.

The plans themselves could be approved as early as the beginning of this year and the construction completed by 2022. Construction of the pipeline will cost around 60 million USD.

The pipeline could transfer up to one billion cubic meters of gas from the Negev to Gaza each year, allowing the construction and operation of local power plants that could subsequently cover the entire electricity needs of the Gaza Strip.

What happens with the profit?

Explorations have shown that gas can fuel Israel’s energy needs for 150 years and add 2 billion USD annually to its GDP for several generations.

The taxation formula was based on a profits tax of 20% -50% once the producing company will have pumped gas worth 1.5 times the initial investments. This, in addition to the royalty fee of 12.5%.

Taxation was considered low, but it turned out it was calculated in a way that it would benefit the public without discouraging investors. Only 40% of the extracted gas is exported.

The legislation was designed in this way to prevent side effects in the economy. The potential for damage stemmed from the foreign currency that could flood the economy, which would have led to the appreciation of its currency and exports, rising unemployment and a stagnant industry, like it happened in the Netherlands in the 1960s.

Thus, it was decided to set up a fund that would siphon royalties fees, reinvest them abroad and then direct the returns towards social expenses such as education or health.

Called a sovereign fund, this mechanism prevents the direct infusion of petrodollars into the national budget and politicians from having direct control over them. According to the law from 2014 it is expected that this fund will start operating this year, once the royalties will exceed 1 billion shekels.

Israel, a regional stakeholder in the energy industry

If the current transaction between Israel and Egypt proves to be efficient, there will be two opportunities for the considerable expansion of the natural gas industries by capitalizing on the two existing liquefied natural gas terminals in Egypt for export to Europe.

Building a third liquefied natural gas terminal on the Red Sea is also under discussion, which would pave the way for export to Asia.

Further more, it should be noted that Israel used its gas export potential in a diplomatic way, teaming up with Greece and Cyprus to bring gas to Europe through Greece and Italy.

A major role in this, however, played the multi-billion USD transactions signed with Egypt and Jordan, which started receiving Israeli gas this week. In other words, the same Arab world that subjected Israel to an “energy siege” now buys gas from the Jewish state, a true masterpiece of the political intelligence and the diplomacy of Benjamin Netanyahu and his team, especially the Energy Minister Yuval Steinitz.

Domestic consequences

“For the first time in its history, Israel will become a major natural gas exporter,” said Benjamin Netanyahu in Tel Aviv. A joint statement by Noble Energy, Delek Drilling and Ratio Oil Exploration claims that start of production will lead to an immediate reduction of the price of electricity on the domestic market.

Israeli Prime Minister Bibi Netanyahu is campaigning for the third consecutive round of general elections in a year, hence the agreement could help him in March, when the voters return to the polls.

“The price of electricity will continue to further decrease next year due to natural gas exports, which makes Israel a regional power,” underlined Netanyahu.

The opening offered by gas exports – to Europe, Asia, and also to Arab countries – could make Netanyahu a strong regional leader, and Israel a major stakeholder on the energy market. For this reason the elections in March now have an even higher stake!

In addition, there is the American peace plan. Even if Netanyahu can count on momentum in popularity, he will have issues with the far-right parties that he relies on for political survival, as there is a good chance that they will not be thrilled that Likud chief recognizes the Palestinian state.

The US-Israeli peace plan

In ongoing election campaign, US President Donald Trump, as well as Israeli Prime Minister Benjamin Netanyahu, have found an extremely favorable time to unveil the Middle East Peace Plan.

Both Bibi Netanyahu and his rival, Benny Gantz were invited to the White House, but laurels and festive moments were set aside for the Israeli Prime Minister in office.

It is no coincidence that Netanyahu was indicted at home in Israel, during his visit to the White House, but just a confirmation that Bibi was right when he claimed that these desperate maneuvers of the opposition are meant to weaken the Jewish state.

The peace plan not only represents agreements on ending the conflict in the area, but also establishes borders for both the Jewish state and Palestine, discusses territorial exchanges, issues of international assistance in the region, economic exchanges, making the plan difficult to be overlooked.

Approx. 70 percent of the West Bank would return to Palestine, including some areas on the border with Egypt, destined for agriculture or industry. The plan, however, rejects Palestinian claims to control the Temple Mount – Haram al-Sharif, which will remain in Jordanian custody.

The Palestinian leadership did not agree with any of this, on the contrary! For two years, Palestinians have publicly refused to meet with Trump officials. In addition to the embarrassment caused by the move of the US embassy to Jerusalem and the recognition of the Golan Heights as belonging to Israel, Palestinian leaders also had to face other steps by the Trump administration weakening their political and economic stance, such as the US’s reliance on reducing funding for the Palestinian refugees program.

The Trump administration has collaborated with European and Arab diplomats to develop this plan, hence the statements of support in certain Arab areas. The reality is that Palestinian leaders have lost the active support of a large part of the Arab world, much more concerned about the situation developing in Iran, from conflict areas such as Yemen, Syria, more recently Libya, or simply their own economic growth.

The Trump administration has pledged to raise no less than $ 28 billion over the next decade to support Palestine, $ 22 billion to further fund Jordan, Egypt and Lebanon. But here we are talking about investments. The money will go towards infrastructure and transport works, facilitating regional trade. Given the presence of US gas companies in the area, the White House’s interest seems at least obvious.

But before Palestine can enjoy any benefit, the Hamas government in Gaza must be removed from power and replaced with the Palestinian Authority. If Hamas wants to remain in power, the group must give up violence, disarm completely and accept the existence of the State of Israel as the national state of the Jewish people. Well, unlikely! However, Hamas seems to understand the importance of natural gas to Gaza. It remains to be seen how Palestine (and the financiers of the so-called liberation movements) will handle the new situation.

What matters now is that there is a plan, a map, a chance for peace, trade and prosperity.