Israel's Gas Dream – The End Is Nigh

In the five years since the discovery of the Tamar and Leviathan natural gas fields off the coast of Israel, the Israeli energy discourse has focused on questions like what to do with the gas, how much of it to export and to whom, and what the fairest distribution of profits would be among the gas partners, headed by Noble Energy and Delek Energy, and the Israeli public.

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But after years of delays and billions of dollars spent, a new and increasingly likely scenario should be considered – the premature – and tragic – death of the Israeli gas dream. I alluded to this option in an August 2013 article titled "Israel's Zero Gas Game" in which I warned that Israel has become so busy dividing the pie that its leaders forgot it must first be baked and that due to the failure of the government to present a clear vision for the country's energy sector, articulate the rights and responsibilities of foreign investors and most importantly set rules and stick to them, "the gas will be left in the ground and the startup nation will be more worthy of the title 'shutdown nation'." Perhaps that sounded crazy at the time. Today, with the decision of the Israeli Anti-Trust Authority to revoke an arrangement permitting Noble-Delek partners to develop Leviathan, declaring them a cartel - a move that will require the separation of Leviathan from Tamar and the sale of Leviathan to a new partnership, effectively postponing the development of Leviathan indefinitely - the scenario of "zero gas" - and perhaps even the withdrawal of Noble from Israel altogether - should be considered seriously.

In deciding to enter Israel Noble has taken a huge financial, regulatory and geopolitical risk. However, the size of the discoveries, the potential of finding oil under the gas layers and the doubling of the company's market capitalization made the move easy to justify to its shareholders. But the Texas company, the only international energy company that was willing to set foot in Israel, was welcomed with no red carpet. Instead it was ushered through a Via Dolorosa of bureaucratic torture which eliminated any chance for gas production before the end of 2018 – ten years from the beginning of exploration. A ten year lead time from discovery to production is a lot to ask of a publicly traded company which has to satisfy quarterly thinking and profit hungry shareholders. But in light of Noble's recent stock performance, dropping from $80 in the summer to $50 today, the decision of the Israeli government provides an impetus to the company's leadership, not to mention the new CEO David Stover, to reconsider the commitment to Israel and begin to seek greener pastures.

There are very few oil and gas companies who have both the experience of drilling in deep waters and the willingness to associate themselves with Israel, especially in light of Noble's experience.

The Israeli government's ruling has huge implications for the future of the region as it means that at best the supply of gas from Leviathan will be delayed into the 2020s. At worst it will not happen at all. The government's concern about a gas monopoly is a legitimate one, especially during an election campaign when issues of cost of living dominate the local political discourse. But its hopes that the hot potato called Leviathan can somehow be sold to new partners require a lot of faith. There are many people with money who may be tempted to buy into a partnership in a 22 trillion cubic feet (tcf) field, but owning a stake in a gas field without an operator at hand is like owning a gold mine on the moon. There are very few oil and gas companies who have both the experience of drilling in deep waters and the willingness to associate themselves with Israel, especially in light of Noble's experience. With falling energy prices worldwide, the chance of a Noble-like operator popping out of nowhere is slim. This means that in its desire to avoid the creation of a monopoly, Israel is taking the risk that Leviathan, the world's largest offshore gas discovery of the past decade, will not be developed for many years to come - if ever. The losers will first and foremost be the Israeli people who will lose not only billions of dollars in tax revenue and the main engine of growth of their economy but also the prospects of securing their energy supply for generations. The scenario is equally bad for Jordan, Egypt and the Palestinian Authority who are counting on Leviathan gas for their economic well-being and which have all signed letters of intent to buy Israeli gas despite local opposition from their respective Israel-hating Islamists. Europe will also be a casualty since a portion of Leviathan was aimed for two LNG terminals in Egypt from where it would have been shipped to European countries aspiring to become less dependent on Russia's gas.

Other than the handful of lawyers who will earn millions litigating the dispute between Noble and the Israeli government in international courts, the biggest winner will be Cyprus. In December 2011 Noble announced the discovery of 7 tcf in a field northwest of Leviathan called Aphrodite (block 12). Other blocks have been opened for bids since attracting interest from a handful of large oil and gas companies including Total of France, Kogas of South Korea, ENI of Italy and Petronas of Malaysia. But with all eyes on Leviathan, Cyprus became an uninteresting side show. This may soon change. Cyprus may not be a paragon of regulatory stability and certainly not an investors' haven and its tense relations with Turkey pose some geopolitical risk, but the fatigue from Israel's energy shenanigans could bring about a shift from Israel to Cyprus as the new center of gravity in the East Mediterranean energy play.

There is no polite way of saying this. Israel's latest decision is tantamount to nationalization of the kind seen in Argentina, Venezuela, Mexico and Russia. All of those governments sugarcoated their decision invoking the need to protect the public interest. The investment community and global oil industry got the message and wrote off those countries. With this miserable decision, Israel has just lodged itself into this notorious club. The price will be paid in spades – and sooner than most Israelis realize. More

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As the map above shows the gas field in offshore Gaza who should be the benefliciaries. Under international law Israel has no legal claim and Gaza most certainly does. I would give Gaza an income to rebuild the infrastracture destroyed by Israel as well as giving them fossil fuel to generate electricity. Editor

 

© 2014

Are sanctions against Iran legal? Or are they collective punishment?

Iran, Pakistan Begin Border Gas Pipe Amid Sanctions Threat

The presidents of Pakistan and Iran inaugurated work on the cross-border leg of a gas pipeline that the U.S. has warned may breach a sanctions regime aimed at curbing the Persian Gulf nation’s nuclear program.

Pakistan’s benchmark KSE 100 share index plunged 2.5 percent in Karachi, the biggest drop in almost two months, as the news sparked concerns the U.S. would impose penalties.

Asif Ali Zardari, on his second trip to Iran within a month, joined Iran’s Mahmoud Ahmadinejad and the country’s Oil Minister Rostam Qasemi in the southern port city of Chabahar for the ground-breaking ceremony, Pakistan state television showed. The leaders offered a prayer for the project’s success and uncovered a plaque at the construction site.

Once completed, the 1,931-kilometer (1,200-mile) natural gas pipeline would help alleviate the energy crisis in Pakistan, where 18-hour blackouts last summer forced factories to close and triggered street protests. Iran is under U.S. and European Union restrictions over its atomic activities, measures that have curbed oil exports and complicated the repatriation of cash from crude sales.

Pakistan’s decision to proceed with the $1.3 billion energy link comes amid a bid to repair relations with the U.S., the South Asian nation’s biggest aid donor, after damaging setbacks including the killing of Osama bin Laden by American commandos in Pakistan in 2011 and a cross-border U.S. airstrike that killed 24 Pakistani soldiers. The U.S. needs Islamabad’s support as it withdraws combat forces from Afghanistan.

Oil Refinery

Ahmadinejad attacked opponents of the pipeline in a speech at the ceremony, drawing parallels between Iran and Pakistan.

“Foreigners are seeking to create divisions between nations in the region in order to control them and rob them of their wealth,” he said. “The only way for regional nations to safeguard their independence, identity, culture and wealth is through cooperation and unity.”

Iran has completed 900 kilometers of the pipeline on its side of the border, according to the website of Pakistan’s Interstate Gas Systems Pvt. Ltd., which will oversee construction in Pakistan. Under an accord signed in June 2010, Iran will provide about 21.5 million cubic meters of gas a day to Pakistan for 25 years. The deal can be extended by five years and volumes may rise to 30 million cubic meters a day.

The two countries are also expected to sign an agreement today to build a $4 billion oil refinery in Pakistan’s Gwadar, the state-run Press TV news channel reported.

‘Serious Concerns’

Work on extending the pipeline into Pakistan has been delayed by difficulties in arranging funding. The ground- breaking ceremony comes just days before Pakistan’s government, headed by Zardari’s party, is to hand over power to a caretaker administration ahead of parliamentary elections in May. The president’s term expires in September.

The U.S., which has offered to help Pakistan secure gas via an alternate route from Central Asia, has recently reiterated its concerns over the pipeline.

“If this deal is finalized for a proposed Iran-Pakistan pipeline, it would raise serious concerns under our Iran Sanctions Act,” Victoria Nuland, U.S. State Department spokeswoman, told a weekly briefing in Washington March 7. The U.S. hopes Pakistani won’t “go in a direction that would cause sanctions to kick in,” Nuland said, according to a transcript posted on the State Department website.

While Pakistan is aware of concerns in Washington, “all our friends including the U.S.” should show greater understanding of the country’s energy needs, Pakistan Foreign Office spokesman Moazzam Ahmad Khan told reporters March 7. More

Fourth Geneva Convention, Part 111, Article 32- 33

Art. 32. The High Contracting Parties specifically agree that each of them is prohibited from taking any measure of such a character as to cause the physical suffering or extermination of protected persons in their hands. This prohibition applies not only to murder, torture, corporal punishments, mutilation and medical or scientific experiments not necessitated by the medical treatment of a protected person, but also to any other measures of brutality whether applied by civilian or military agents.

Art. 33. No protected person may be punished for an offence he or she has not personally committed. Collective penalties and likewise all measures of intimidation or of terrorism are prohibited.

Pillage is prohibited.

Reprisals against protected persons and their property are prohibited.

http://www.icrc.org/ihl.nsf/full/380

 

Under the 1949 Geneva Conventions collective punishments are a war crime. By collective punishment, the drafters of the Geneva Conventions had in mind the reprisal killings of World Wars I and World War II. In the First World War, Germans executed Belgian villagers in mass retribution for resistance activity. In World War II, the Nazis carried out a form of collective punishment to suppress resistance. Entire villages or towns or districts were held responsible for any resistance activity that occured in them. Additional concern also addressed the United States' atomic bombings of Hiroshima and Nagasaki at the war's end, which, in turn, caused death and disease to hundreds of thousands of Japanese civilians.[3] The conventions, to counter this, reiterated the principle of individual responsibility. The International Committee of the Red Cross (ICRC) Commentary to the conventions states that parties to a conflict often would resort to "intimidatory measures to terrorize the population" in hopes of preventing hostile acts, but such practices "strike at guilty and innocent alike. They are opposed to all principles based on humanity and justice."

It could therefore be argued that sanctions are a type of economic warfare, in which case the Geneva Conventions should apply. Therefore, the Fourth Geneva Convention, Part 111, Article 33 would apply, prohibiting any measure to cause physical suffering to Protected Persons. Editor