Hidden energy crisis in the Middle
East By Victor Kotsev
TEL AVIV - While most of the world is
preoccupied with the impact of instability in the
Middle East on oil prices and the world economy, a
different kind of energy crisis is unfolding
practically unnoticed. An ongoing reshuffle in
natural gas supplies has left at least two
countries - Israel and Jordan - without much of
the gas they need.
In general, the
politics of Middle Eastern gas will probably be
just as dramatically affected by the upheaval as
those of oil, but will follow a separate
trajectory. Their effect will, at least initially,
be more local in nature, and will vary for each
country. However, the energy status quo in the
region is slated to change dramatically.
On February 5, at the height of the
uprising against then-president Hosni Mubarak, a
massive explosion rocked a gas terminal near the
Egyptian town of El-Arish. The head of the
Egyptian natural gas company, Magdy Toufik, blamed
it on ''a small amount of gas
leaking',' but it soon
emerged that the most likely cause was an act of
terror - in some accounts, two separate terrorist
attacks. According to reports in the Associated
Press, ''The terminal's guards testified that
[four masked gunmen] stormed the terminal in two
cars, briefly restrained the guards and then set
off the explosives by remote control.''
The terminal lay on the Arab gas pipeline
carrying Egyptian gas to Jordan, Syria, Lebanon
and even Turkey. The section that branches off of
that pipeline into Israel was not affected, but
Egypt shut off gas supplies to the Jewish state as
well. Egyptian authorities claimed that the system
needed ''to cool off',' and that they would resume
supplies within a week or so.
Over a month
and US$150 million of losses later (for Israel and
Jordan combined), the gas is still not flowing.
Egyptian authorities are quickly changing their
tune: having missed at least two self-imposed
deadlines to resume the supplies, until a few days
ago they continued to insist that the pipeline
would be activated very shortly.
Now,
however, they have started to ask for an increase
in the price at which they are selling the gas.
''Egypt has officially informed Jordan that the
gas supplies will resume only if Amman signs an
agreement on new rates,'' an unnamed official told
Agence France-Presse on Tuesday.
There is
some sound logic in this request, while less so in
the manner it was made. For the past five years,
Egypt has been selling gas to its northern
neighbors at highly subsidized rates despite
facing a shortage of gas at home. This led to an
absurd situation last year when the Egyptian
government was forced to consider buying back its
own gas from Israel at a 600% premium to match the
market rate. [1]
The Egyptian military
regime, facing a dire financial situation, seems
intent on righting this injustice.
In the
case of Israel, it has some trumps to play, not
least of which is the antipathy of the Egyptian
street toward the Jewish state. In late 2008, a
Cairo court ordered the government to stop the
exports, because they were never approved by the
Egyptian parliament. Mubarak ignored the order,
which did not have a timeline attached to it, but
it seems that the current government will use it
as an excuse to renegotiate the treaty.
Meanwhile, recent reports indicate that
Mubarak and his family are facing indictments for
corruption, including possibly for taking bribes
in order to ensure the gas deal. [2]
Jordan is even more important than Israel,
because it buys more gas and at an even lower
price. Whereas Israel currently pays $4.5 per MBTU
(million British thermal units - a unit of
measurement used for natural gas), Jordan pays $3.
Egypt's gas accounts for 40% of Israel's gas
imports and 20% of the Jewish state's electricity,
while Jordan relies on it for 80% of its
electricity production. (Syria's and Lebanon's
imports are meager by comparison - Syria, for
example, relies on Egypt for only about 7% of its
gas).
Thus, the Egyptian leadership is
applying a familiar tactic: beating up on Israel
to convey a message to the Arab world. Indeed,
this is more or less exactly how a message to
Amman is being framed. In the words of a Western
diplomat in the Jordanian capital speaking to
Agence France-Presse, ''It is difficult for Egypt
to export gas to Jordan, and not Israel, without
raising an international outcry.''
The
crisis has generated a lot of speculation, at
least inside Israel. Neither Israel nor Jordan
seems in a position to resist the Egyptian
overtures. Both have the capacity to use
alternative fossil fuels such as diesel and mazut
to generate electricity, but this costs roughly 10
times as much as gas does, and has a disastrous
effect on the environment. Currently, the Jewish
state is losing about $1.5 million a day from the
cutoff, while Jordan's losses stand at $2.2
million a day.
According to the Israeli
business newspaper The Calcalist, there are three
possible scenarios: either the gas remains cut off
permanently (unlikely), or deliveries resume in
smaller quantities (moderately likely), or
deliveries resume in full but with a price hike
(most likely). The Calcalist estimates that an
increase in payments of about 33% would settle the
dispute; over the course of the 20-year contract,
this would bring Egypt an extra between two and
three billion dollars from Israel alone.
Most Israeli analysts see in this a
temporary solution at best. ''While the current
disruption appears to be temporary,'' Zafrir Rinat
writes in the Israeli daily Ha'aretz, ''those in
charge of Israel's energy economy must prepare now
for the possibility of more prolonged
interruptions, whether due to problems operating
the pipeline or a reversal in Egypt's commitment
to supplying natural gas to Israel.''
What
is remarkable is that Israel itself has recently
started to eye prospects at becoming a gas
exporter. In December 2010, off its Mediterranean
coast, the Noble Energy Consortium confirmed the
most significant deep-water gas discovery in the
past decade: Leviathan. The previous year, a
smaller but still major discovery was made at the
Tamar field nearby. More statistics can be found
here,
but the punch line is: ''Israel now faces the
unprecedented prospect of at least partial energy
independence.''
It will take several years
before gas from the new fields starts flowing, and
this is exactly how much time Israel needs to buy.
The process faces further complications, as the
Benjamin Netanyahu administration already
initiated a procedure to raise its tariffs on the
profits of the gas companies, but we can assume
that with instability in Egypt, officials will do
their best to stick to their self-proposed
deadline of 2013.
Once the new gas is
pumping, it will impact substantially on the
energy and geostrategic calculations in the
region. In a related development, Cyprus and
Israel agreed to delineate their maritime border
(in itself a diplomatic advance for the Jewish
state), which in turn drew negative attention from
other countries, including Turkey and Lebanon.
Lebanon has already attempted to claim ownership
of the Leviathan, and this may become the next
issue of contention between Israel and Hezbollah.
[3]
On the other hand, Egypt will probably
be relieved, and its relationship with Israel will
likely improve. The same applies to Jordan, which
may start depending on the Jewish state for some
of its energy (in all likelihood, the Israelis
would welcome that, if only to have more leverage
in the Arab world).
The exploration of
off-shore gas fields could also provide some
creative solutions to the Israeli-Palestinian
talks, specifically related to the sustainability
of Gaza's economy.
According to a report
in the Israeli business daily Globes, last Sunday,
''Prime Minister Benjamin Netanyahu ... proposed
to Palestinian Authority President Mahmoud Abbas
(Abu-Mazen) to jointly develop the Gaza Marine and
Noa offshore natural gas fields. The Noa field,
which has 7-8 billion cubic meters of gas could
replace Egyptian gas, if its supply is not
resumed, while the 30-billion cubic meter Gaza
Marine field could meet the electricity needs of
Gaza's 1.5 million residents.''
This
specific proposal is, at best, tongue-in-cheek.
The political climate right now would hardly allow
for such a joint project to develop. The Gaza
rulers from Hamas have a bitter feud with the
Palestinian Authority in the West Bank; both
Netanyahu and Abbas are weak internally,
challenged by right-wing factions in their own
governments. With all the instability in the
region, one can never be sure if one's partners of
today will still be around tomorrow.
However, under different conditions - for
example, a significant advance in the peace talks
- the idea could be quite viable. Israel is
already drawing most of the gas that it consumes
from a smaller find nearby, called Mary-B, which
is expected to be exhausted in a year or two.
Other aspects of this thinking - the idea
of energy independence for Gaza - can also aide
unilateral action by Israel. In my article ''A
major reshuffle in the Levant''
(http://www.atimes.com/atimes/Middle_East/MC05Ak07.html,
Asia Times Online, March 4, 2011), I argued that
Israel will most likely attempt to disengage fully
from Gaza in the near future. Netanyahu's
statement can be interpreted in this context as
well.
Besides Egypt, the natural gas
supply in the Mediterranean region is disrupted by
the events in Libya, and somewhat threatened by
tensions in Algeria (whose pipe to Spain is
expected to be launched soon). But these crises
will have very different repercussions, since the
local dynamics in each country are different. As
opposed to oil, natural gas is very difficult and
expensive to ship, and thus it is a more important
factor on a regional than on a global scale.
Most of Libya's gas exports go via the
Greenstream underwater pipeline to Italy; the
Greenstream has been shut off since February 22,
meaning that Italy is hit the hardest. According
to a Reuters report, however, the closure could
actually work to Italy's favor. ''The lack of
Libyan gas means [Italian oil and gas company] Eni
can take delivery of fuel it would have to pay for
anyway under take-or-pay (ToP) contracts with
Russian export monopoly Gazprom,'' Reuters writes.
[4]
If this analysis is correct, it is
conceivable that Gaddafi very carefully picked
which resource to shut off first, taking into
account the sensitivities of his friend Italian
Prime Minister Silvio Berlusconi. By contrast, and
despite reductions and the bombing on Wednesday of
the major oil terminal of Libya, Gaddafi's oil
exports to Europe have not stopped, as a recent
Financial Times report indicates. [5]
A
common pattern that emerges is that the political
upheaval catalyzes powerful existing trends in the
regional natural gas market. We can expect
instability in the short run followed by a major
restructuring of the basic energy relationships in
the Mediterranean and the Middle East.
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