Saudi Aramco CEO Says Oil Supply Shortage Coming, Cites Steep Drop In Conventional Discoveries & Steep Drop In Investments

The CEO of Saudi Aramco, Amin Nasser, was recently quoted at a conference in Istanbul as saying that the world is likely heading towards an oil supply shortage before too long as a result of falling discoveries of new conventional oil reserves and steep drops in new investment.

This situation — peak oil for conventional oil fields, which was passed several years back, and the growing dependence on expensive “unconventional” options — is one that we’ve reported on numerous times now.

We’ve also reported on the way that the oil price crash of recent years has led directly to rapid increases in the debt levels at many top oil companies, and to a steep drop in new investments.

While taking an oil exec at their word when they’re discussing the oil market is probably ill-advised, in general, Nasser is more or less just stating the blunt reality of the situation here — as far as general trends go, oil is only going to get more expensive as time goes by, as cheap conventionals are rapidly being depleted.

“If we look at the long-term situation of oil supplies, for example, the picture is becoming increasingly worrying,” Nasser commented, as reported by Reuters. “Financial investors are shying away from making much needed large investments in oil exploration, long-term development and the related infrastructure. Investments in smaller increments such as shale oil will just not cut it.”

To put a figure to that, around $1 trillion in new investments have been “lost” since 2014 or so. This only compounds the situation as regards the increasing difficulty of finding new conventional oil reserves. The easiest to find and develop have been in production for a long time now — what remains are the less attractive options. More

The Palestinian dimension of the regional energy landscape

"The dynamic regional context creates opportunities for synergies between Palestinians, Israelis and other regional actors in the field of energy," Ariel Ezrahi, Energy Advisor at the Office of the Quartet Representative told the International Oil and Gas Conference on Thursday (20 November 2014).

Ariel Ezrahi

In his presentation to the conference at the Dead Sea in Israel, Ezrahi gave an overview of the Palestinian energy sector including the current capacities, future demand, and potential opportunities for investment and development. He said that development of the Gaza Marine offshore gas field would constitute an important source of revenue for the Palestinian Authority, and fuel Palestinian power generation projects for years to come. The Gaza Marine field would not only be a cost-efficient solution for domestic power generation, but also a more environmentally friendly solution than the present sources of fuel, said Ezrahi.

He also noted that the West Bank currently has no power generation capacity whatsoever. Electricity usage is currently around 860 megawatts, but demand in the West Bank alone is expected to reach around 1,300 megawatts in 2020. Gaza currently receives between 150 to 210 megawatts, while demand is closer to 410 megawatts. By 2020, Ezrahi said, demand will hit 855 megawatts.

"There is a lot of room for cooperation in the energy sphere between Palestinian actors and Israel and other regional counterparts. I think it's a very exciting time and that the energy sector can hopefully act as a bridge to overcome some of the political constraints. And that would be in everyone's interest," he told participants.

"Israel needs to see the Palestinians as an asset as they strive to join the regional power grid, and as a bridge to the Arab world." Ezrahi emphasised that the Gaza Marine field should not be seen as a competitor to Israel’s fields, but rather, it provides a potential additional source of gas and opportunities for cooperation between the neighbouring countries. More

Related Links

• Presentation on the Palestinian dimension of the regional energy landscape
• 'Israel’s bridge to the Arab world: Palestinian natural gas?' article in Haaretz English Edition
• 'Gaza marine development could help deliver Israeli security,' article in Rigzone
• Ariel Ezrahi interivew with TheMarker (Hebrew)

One has to question why Gaza and Palestine would want to give their energy generation to Israel, the occupying power, or in fact help Israel sell their gas through Egypt. Using the gas from the Gazan fields would at least give both Gaza and Palestine energy independance and insulate them from the withholding by Israel of their tax receipts, see http://is.gd/FPWOWr Editor

 

©

The Great Game in the Holy Land

How Gazan Natural Gas Became the Epicenter of An International Power Struggle

By Michael Schwartz

Guess what? Almost all the current wars, uprisings, and other conflicts in the Middle East are connected by a single thread, which is also a threat: these conflicts are part of an increasingly frenzied competition to find, extract, and market fossil fuels whose future consumption is guaranteed to lead to a set of cataclysmic environmental crises.

Amid the many fossil-fueled conflicts in the region, one of them, packed with threats, large and small, has been largely overlooked, and Israel is at its epicenter. Its origins can be traced back to the early 1990s when Israeli and Palestinian leaders began sparring over rumored natural gas deposits in the Mediterranean Sea off the coast of Gaza. In the ensuing decades, it has grown into a many-fronted conflict involving several armies and three navies. In the process, it has already inflicted mindboggling misery on tens of thousands of Palestinians, and it threatens to add future layers of misery to the lives of people in Syria, Lebanon, and Cyprus. Eventually, it might even immiserate Israelis.

Resource wars are, of course, nothing new. Virtually the entire history of Western colonialism and post-World War II globalization has been animated by the effort to find and market the raw materials needed to build or maintain industrial capitalism. This includes Israel's expansion into, and appropriation of, Palestinian lands. But fossil fuels only moved to center stage in the Israeli-Palestinian relationship in the 1990s, and that initially circumscribed conflict only spread to include Syria, Lebanon, Cyprus, Turkey, and Russia after 2010.

The Poisonous History of Gazan Natural Gas

Back in 1993, when Israel and the Palestinian Authority (PA) signed the Oslo Accords that were supposed to end the Israeli occupation of Gaza and the West Bank and create a sovereign state, nobody was thinking much about Gaza's coastline. As a result, Israel agreedthat the newly created PA would fully control its territorial waters, even though the Israeli navy was still patrolling the area. Rumored natural gas deposits there mattered little to anyone, because prices were then so low and supplies so plentiful. No wonder that the Palestinians took their time recruiting British Gas (BG) -- a major player in the global natural gas sweepstakes -- to find out what was actually there. Only in 2000 did the two parties even sign a modest contract to develop those by-then confirmed fields.

BG promised to finance and manage their development, bear all the costs, and operate the resulting facilities in exchange for 90% of the revenues, an exploitative but typical "profit-sharing" agreement. With an already functioning natural gas industry, Egypt agreed to be the on-shore hub and transit point for the gas. The Palestinians were to receive 10% of the revenues (estimated at about a billion dollars in total) and were guaranteed access to enough gas to meet their needs.

Had this process moved a little faster, the contract might have been implemented as written. In 2000, however, with a rapidly expanding economy, meager fossil fuels, and terrible relations with its oil-rich neighbors, Israel found itself facing a chronic energy shortage. Instead of attempting to answer its problem with an aggressive but feasible effort to develop renewable sources of energy, Prime Minister Ehud Barak initiated the era of Eastern Mediterranean fossil fuel conflicts. He brought Israel's naval control of Gazan coastal waters to bear and nixed the deal with BG. Instead, he demanded that Israel, not Egypt, receive the Gaza gas and that it also control all the revenues destined for the Palestinians -- to prevent the money from being used to "fund terror."

With this, the Oslo Accords were officially doomed. By declaring Palestinian control over gas revenues unacceptable, the Israeli government committed itself to not accepting even the most limited kind of Palestinian budgetary autonomy, let alone full sovereignty. Since no Palestinian government or organization would agree to this, a future filled with armed conflict was assured.

The Israeli veto led to the intervention of British Prime Minister Tony Blair, who sought to broker an agreement that would satisfy both the Israeli government and the Palestinian Authority. The result: a 2007 proposal that would have delivered the gas to Israel, not Egypt, at below-market prices, with the same 10% cut of the revenues eventually reaching the PA. However, those funds were first to be delivered to the Federal Reserve Bank in New York for future distribution, which was meant to guarantee that they would not be used for attacks on Israel.

This arrangement still did not satisfy the Israelis, who pointed to the recent victory of the militant Hamas party in Gaza elections as a deal-breaker. Though Hamas had agreed to let the Federal Reserve supervise all spending, the Israeli government, now led by Ehud Olmert, insisted that no "royalties be paid to the Palestinians." Instead, the Israelis would deliver the equivalent of those funds "in goods and services."

This offer the Palestinian government refused. Soon after, Olmert imposed a draconian blockade on Gaza, which Israel's defense minister termed a form of "'economic warfare' that would generate a political crisis, leading to a popular uprising against Hamas." With Egyptian cooperation, Israel then seized control of all commerce in and out of Gaza, severely limiting even food imports and eliminating its fishing industry. As Olmert advisor Dov Weisglass summed up this agenda, the Israeli government was putting the Palestinians "on a diet" (which, according to the Red Cross, soon produced "chronic malnutrition," especially among Gazan children).

When the Palestinians still refused to accept Israel's terms, the Olmert government decided to unilaterally extract the gas, something that, they believed, could only occur once Hamas had been displaced or disarmed. As former Israel Defense Forces commander and current Foreign Minister Moshe Ya'alon explained, "Hamas... has confirmed its capability to bomb Israel's strategic gas and electricity installations... It is clear that, without an overall military operation to uproot Hamas control of Gaza, no drilling work can take place without the consent of the radical Islamic movement."

Following this logic, Operation Cast Lead was launched in the winter of 2008. According to Deputy Defense Minister Matan Vilnai, it was intended to subject Gaza to a "shoah" (the Hebrew word for holocaust or disaster). Yoav Galant, the commanding general of the Operation, said that it was designed to "send Gaza decades into the past." As Israeli parliamentarian Tzachi Hanegbi explained, the specific military goal was "to topple the Hamas terror regime and take over all the areas from which rockets are fired on Israel."

Operation Cast Lead did indeed "send Gaza decades into the past." Amnesty International reported that the 22-day offensive killed 1,400 Palestinians, "including some 300 children and hundreds of other unarmed civilians, and large areas of Gaza had been razed to the ground, leaving many thousands homeless and the already dire economy in ruins." The only problem: Operation Cast Lead did not achieve its goal of "transferring the sovereignty of the gas fields to Israel."

More Sources of Gas Equal More Resource Wars

In 2009, the newly elected government of Prime Minister Benjamin Netanyahu inheritedthe stalemate around Gaza's gas deposits and an Israeli energy crisis that only grew more severe when the Arab Spring in Egypt interrupted and then obliterated 40% of the country's gas supplies. Rising energy prices soon contributed to the largest protests involving Jewish Israelis in decades.

As it happened, however, the Netanyahu regime also inherited a potentially permanent solution to the problem. An immense field of recoverable natural gas was discovered in the Levantine Basin, a mainly offshore formation under the eastern Mediterranean. Israeli officials immediately asserted that "most" of the newly confirmed gas reserves lay "within Israeli territory." In doing so, they ignored contrary claims by Lebanon, Syria, Cyprus, and the Palestinians.

In some other world, this immense gas field might have been effectively exploited by the five claimants jointly, and a production plan might even have been put in place to ameliorate the environmental impact of releasing a future 130 trillion cubic feet of gas into the planet's atmosphere. However, as Pierre Terzian, editor of the oil industry journal Petrostrategies, observed, "All the elements of danger are there... This is a region where resorting to violent action is not something unusual."

In the three years that followed the discovery, Terzian's warning seemed ever more prescient. Lebanon became the first hot spot. In early 2011, the Israeli government announcedthe unilateral development of two fields, about 10% of that Levantine Basin gas, which lay in disputed offshore waters near the Israeli-Lebanese border. Lebanese Energy Minister Gebran Bassil immediately threatened a military confrontation, asserting that his country would "not allow Israel or any company working for Israeli interests to take any amount of our gas that is falling in our zone." Hezbollah, the most aggressive political faction in Lebanon, promised rocket attacks if "a single meter" of natural gas was extracted from the disputed fields.

Israel's Resource Minister accepted the challenge, asserting that "[t]hese areas are within the economic waters of Israel... We will not hesitate to use our force and strength to protect not only the rule of law but the international maritime law."

Oil industry journalist Terzian offered this analysis of the realities of the confrontation:

"In practical terms... nobody is going to invest with Lebanon in disputed waters. There are no Lebanese companies there capable of carrying out the drilling, and there is no military force that could protect them. But on the other side, things are different. You have Israeli companies that have the ability to operate in offshore areas, and they could take the risk under the protection of the Israeli military."

Sure enough, Israel continued its exploration and drilling in the two disputed fields, deploying drones to guard the facilities. Meanwhile, the Netanyahu government invested major resources in preparing for possible future military confrontations in the area. For one thing, with lavish U.S. funding, it developed the "Iron Dome" anti-missile defense system designed in part to intercept Hezbollah and Hamas rockets aimed at Israeli energy facilities. It also expanded the Israeli navy, focusing on its ability to deter or repel threats to offshore energy facilities. Finally, starting in 2011 it launched airstrikes in Syria designed, according to U.S. officials, "to prevent any transfer of advanced... antiaircraft, surface-to-surface and shore-to-ship missiles" to Hezbollah.

Nonetheless, Hezbollah continued to stockpile rockets capable of demolishing Israeli facilities. And in 2013, Lebanon made a move of its own. It began negotiating with Russia. The goal was to get that country's gas firms to develop Lebanese offshore claims, while the formidable Russian navy would lend a hand with the "long-running territorial dispute with Israel."

By the beginning of 2015, a state of mutual deterrence appeared to be setting in. Although Israel had succeeded in bringing online the smaller of the two fields it set out to develop, drilling in the larger one was indefinitely stalled "in light of the security situation." U.S. contractor Noble Energy, hired by the Israelis, was unwilling to invest the necessary $6 billion dollars in facilities that would be vulnerable to Hezbollah attack, and potentially in the gun sights of the Russian navy. On the Lebanese side, despite an increased Russian naval presence in the region, no work had begun.

Meanwhile, in Syria, where violence was rife and the country in a state of armed collapse, another kind of stalemate went into effect. The regime of Bashar al-Assad, facing a ferocious threat from various groups of jihadists, survived in part by negotiating massive military support from Russia in exchange for a 25-year contract to develop Syria's claims to that Levantine gas field. Included in the deal was a major expansion of the Russian naval base at the port city of Tartus, ensuring a far larger Russian naval presence in the Levantine Basin.

While the presence of the Russians apparently deterred the Israelis from attempting to develop any Syrian-claimed gas deposits, there was no Russian presence in Syria proper. So Israel contracted with the U.S.-based Genie Energy Corporation to locate and develop oil fields in the Golan Heights, Syrian territory occupied by the Israelis since 1967. Facing a potential violation of international law, the Netanyahu government invoked, as the basis for its acts, an Israeli court ruling that the exploitation of natural resources in occupied territories was legal. At the same time, to prepare for the inevitable battle with whichever faction or factions emerged triumphant from the Syrian civil war, it began shoring up the Israeli military presence in the Golan Heights.

And then there was Cyprus, the only Levantine claimant not at war with Israel. Greek Cypriots had long been in chronic conflict with Turkish Cypriots, so it was hardly surprising that the Levantine natural gas discovery triggered three years of deadlocked negotiations on the island over what to do. In 2014, the Greek Cypriots signed an exploration contract with Noble Energy, Israel's chief contractor. The Turkish Cypriots trumped this move by signing a contract with Turkey to explore all Cypriot claims "as far as Egyptian waters." Emulating Israel and Russia, the Turkish government promptly moved three navy vesselsinto the area to physically block any intervention by other claimants.

As a result, four years of maneuvering around the newly discovered Levantine Basin deposits have produced little energy, but brought new and powerful claimants into the mix, launched a significant military build-up in the region, and heightened tensions immeasurably.

Gaza Again -- and Again

Remember the Iron Dome system, developed in part to stop Hezbollah rockets aimed at Israel's northern gas fields? Over time, it was put in place near the border with Gaza to stop Hamas rockets, and was tested during Operation Returning Echo, the fourth Israeli military attempt to bring Hamas to heel and eliminate any Palestinian "capability to bomb Israel's strategic gas and electricity installations."

Launched in March 2012, it replicated on a reduced scale the devastation of Operation Cast Lead, while the Iron Dome achieved a 90% "kill rate" against Hamas rockets. Even this, however, while a useful adjunct to the vast shelter system built to protect Israeli civilians, was not enough to ensure the protection of the country's exposed oil facilities. Even one direct hit there could damage or demolish such fragile and flammable structures.

The failure of Operation Returning Echo to settle anything triggered another round of negotiations, which once again stalled over the Palestinian rejection of Israel's demand to control all fuel and revenues destined for Gaza and the West Bank. The new Palestinian Unity government then followed the lead of the Lebanese, Syrians, and Turkish Cypriots, and in late 2013 signed an "exploration concession" with Gazprom, the huge Russian natural gas company. As with Lebanon and Syria, the Russian Navy loomed as a potential deterrent to Israeli interference.

Meanwhile, in 2013, a new round of energy blackouts caused "chaos" across Israel, triggering a draconian 47% increase in electricity prices. In response, the Netanyahu government considered a proposal to begin extracting domestic shale oil, but the potential contamination of water resources caused a backlash movement that frustrated this effort. In a country filled with start-up high-tech firms, the exploitation of renewable energy sources was still not being given serious attention. Instead, the government once again turned to Gaza.

With Gazprom's move to develop the Palestinian-claimed gas deposits on the horizon, the Israelis launched their fifth military effort to force Palestinian acquiescence, Operation Protective Edge. It had two major hydrocarbon-related goals: to deter Palestinian-Russian plans and to finally eliminate the Gazan rocket systems. The first goal was apparently met when Gazprom postponed (perhaps permanently) its development deal. The second, however, failed when the two-pronged land and air attack -- despite unprecedented devastation in Gaza -- failed to destroy Hamas's rocket stockpiles or its tunnel-based assembly system; nor did the Iron Dome achieve the sort of near-perfect interception rate needed to protect proposed energy installations.

There Is No Denouement

After 25 years and five failed Israeli military efforts, Gaza's natural gas is still underwater and, after four years, the same can be said for almost all of the Levantine gas. But things are not the same. In energy terms, Israel is ever more desperate, even as it has been building up its military, including its navy, in significant ways. The other claimants have, in turn, found larger and more powerful partners to help reinforce their economic and military claims. All of this undoubtedly means that the first quarter-century of crisis over eastern Mediterranean natural gas has been nothing but prelude. Ahead lies the possibility of bigger gas wars with the devastation they are likely to bring. More

 

 

©

Israel’s looming gas empire requires a final solution in Gaza

“The destruction which I have seen coming here is beyond description,” said UN secretary-general, Ban Ki Moon, after his October tour of the Gaza Strip.

Operation Protective Edge, Israel’s military incursion into Gaza this past summer, wrought an unprecedented level of devastation on the tiny strip of land inhabited by 1.8 million people. The operation had damaged or destroyed over 100,000 homes, affecting more than 600,000 Palestinians - a third of the population.

Mowing the grass

“Basically the town is unliveable,” said Mayor Mohammed al-Kafarna about Beit Hanoun. “There is no power, water or communications. There are not basics for life.” One major sewage pipe serving nearly half a million people had been severed, sending huge quantities of raw sewage into the sea and on fields.

In 2012, a UN report warned that Gaza “will not be liveable by 2020”. The following year, Israel’s tightening of its blockade prompted Filippo Grande, commissioner-general of the UN Works and Relief Agency (UNWRA), to say that “Gaza is quickly becoming uninhabitable.”

Israel’s massive bombardment of Gaza this summer has fast-tracked that outcome. This is no accident. While Israeli officials will not admit it, this strategic goal can be surmised from the statements of those close to key officials in Netanyahu’s administration.

Dismantling Gaza

“The only durable solution,” wrote Martin Sherman in the Jerusalem Post during the summer onslaught, “requires dismantling Gaza, humanitarian relocation of the non-belligerent Arab population, and extension of Israeli sovereignty over the region”: a recipe for ethnic cleansing and colonisation. He complained that the elected Israeli government is constrained by an unelected “left-wing” political discourse wedded to “the two-state concept and the land-for-peace doctrine,” both of which must be rejected.

For Sherman, the current strategy of periodically “mowing the grass” – “a new round of fighting every time the Palestinian violence reaches levels Israel finds unacceptable” – must be replaced by a final solution: “The grass needs to be uprooted – once and for all.”

Sherman is no pariah. On the contrary, his ideas increasingly represent the thinking of senior Israeli cabinet officials. As founding director of the Israel Institute for Strategic Studies (IISS), an initiative dedicated to laying “the foundations of a new assertive Zionist-compliant paradigm,” Sherman’s platform is endorsed by the following key Israeli leaders: Yaakov Amidror, Israel’s national security adviser until 2013; Uzi Landau, minister of tourism and ex-minister for energy; and Moshe Ya’alon, vice prime minister and incumbent defence minister.

Colonisation

These connections reveal critical elements of Israel’s security strategy. Amidror, for instance, has long advocated that Israel directly occupy Gaza “for many years,” to prevent a situation where “Hamas is strengthened into an entity similar to Hezbollah.”

His successor, Yossi Cohen, who presided with Ya’alon over Operation Protective Edge and who has previously served as deputy head of Shin Bet (Israel’s domestic security agency), told Israeli Army Radio that the operation had successfully created conditions that would facilitate the Palestinian Authority’s (PA) return to power in Gaza at Hamas’ expense. Hamas needed to be “demilitarised”, he said.

Israeli foreign minister Avigdor Lieberman agreed: “As long as Hamas controls Gaza, we won’t be able to ensure the safety of Israel's citizens in the South and we won't be able to make a peace agreement.” Earlier during the latest invasion of Gaza, Lieberman recommended that Israel consider re-occupying Gaza to end rocket attacks.

Palestinian statehood: A threat to Israel’s energy hegemony?

Another Sherman endorser, Uzi Landau, who is currently minister of tourism, was minister for energy and water from 2009 to 2013. There he oversaw Israel’s resource policies, especially concerning gas discoveries and export options. In 2011, when the PA was bidding to secure formal UN recognition of Palestinian statehood, Landau told Israeli radio that Israel should unilaterally declare its sovereignty over the Jordan Valley, West Bank settlements, and all of Gaza to head off the bid. He had previously been dispatched by the foreign ministry to Chile, Colombia and Australia to lobby against the PA campaign.

Why would Landau, then energy and water minister, be sent to lobby against Palestinian statehood?

In recent years, Israel had made increasingly significant energy discoveries throwing light on the link. In December 2010, the Texas based energy company Noble energy announced that it had discovered 25 trillion cubic feet of gas in the offshore Leviathan field (downgraded more recently to 17 trillion). This followed the US Geological Survey’s (USGS) assessment earlier in the year of an estimated 122 trillion cubic feet of technically recoverable gas in the Levant basin, encompassing the waters of Israel, Syria, Lebanon, Cyprus and Gaza. This is “bigger than anything we have assessed in the United States,” said a USGS spokesperson at the time.

Landau’s advisers: Israel’s gas could deplete in decades

The new discoveries would turn Israel into a gas-export powerhouse, with potentially transformative implications across the region. But there were potential pitfalls.

In 2012, the chief scientists of Landau’s energy and water ministry warned the government that Israel did not have sufficient gas resources to sustain both exports and domestic demand. Citing a gap of “100 to 150 billion cubic metres between the demand projections that were presented to the committee and the most recent projections,” they said that Israel’s “gas reserves are likely to last even less than 40 years!"

By 2055, the chief scientists argued, even if Israel chose not to export any gas, it would entirely exhaust its offshore reserves. But if Israel exports significant quantities of gas, and if it turns out that much of its gas turns out to be not commercially extractable, then the breaking point could arrive decades earlier. “The more gas we use now, the sooner we'll need to start importing gas or oil or to find alternative technology.”

Landau and his colleagues obviously took the report seriously enough that, according to Ha'aretz, they excluded the report’s findings from the committee determining Israel’s gas export policy.

Threat of war

Complicating matters further, many of the recently discovered oil and gas resources Israel is claiming for itself are in disputed territorial waters where maritime boundaries are not clearly defined.

In the summer of 2010, Landau said that Israel would “not hesitate to use force” to protect its offshore gas discoveries. He was responding to claims that Leviathan’s deposits extend into Lebanon’s territorial waters.

Similarly, two offshore fields that Israel is already exploiting have been claimed by the Palestinian Authority to extend into Gaza's offshore territory – Mari-B, which is near depletion, and Noa North, both of which are being developed by Noble Energy.

Gaza’s gas: The key to peace?

In March 2014, just a few months before the IDF launched Operation Protective Edge in Gaza, the German Marshall Fund of the United States published a policy brief on Israel’s interests in Gaza’s gas fields by Simon Henderson, director of the Gulf and Energy Policy Program at the Washington Institute for Near East Policy (WINEP) in Washington DC. WINEP is notable for its influence amongst US foreign policymakers. Current and former WINEP members have had senior roles in successive US administrations, including Obama's, and its alumni have gone onto serve across various US government agencies on Middle East policy.

Henderon’s policy brief in particular pinpointed the Gaza Marine, where just over 1 trillion cubic feet of gas was discovered by BG Group in 2000. Gaza Marine could supply all of Palestinian power for up to 20 years. Although the election of Hamas in 2006 in Gaza left negotiations over the gas between Israel and the PA at a stalemate, according to Henderson: “In late 2011 and early 2012, there was renewed Israeli interest in devising a way to exploit the natural gas of Gaza Marine.”

International diplomatic interest further increased in 2013, with Quartet Middle East envoy Tony Blair and US secretary of state John Kerry seeing the Gaza Marine as integral to a potential peace package. In October 2013, Israeli officials conceded that the Israeli government was “very supportive” of the project. All this is corroborated by British Foreign Office files released under Freedom of Information.

Israel’s vision for the Gaza Marine includes a range of options. Apart from boosting PA revenues dramatically, “Using Gaza Marine gas may also reduce the need of Israel to consume its own natural gas to generate electricity for the Palestinians,” observed Henderson. “Such usage will also marginally lower Israel’s dependence on fields controlled by the Noble Energy/Delek group, which currently holds the licenses for the Tamar field and all the other Israeli fields likely to come on stream in the next few years.”

Gaza’s gas, Henderson continued, “would be available for transfer into Israel’s natural gas main network, feeding power stations and petrochemicals across the country.” The gas could also be used for Gaza’s power plant, or even to power the West Bank. In the latter case, “the Gaza Marine natural gas would be fed to an Israel power plant to generate electricity. That electricity would then be supplied to the West Bank.”

Gaza’s gas: The key to exports?

But there is another dimension to the strategic significance of the Gaza Marine: Israel’s gas ambitions. This was alluded to by Ariel Ezrahi, senior energy adviser in Tony Blair’s Office of the Quartet Representative in east Jerusalem, who noted that the biggest obstacle to Israel becoming a regional gas exporter is the opposition of domestic Arab populations in Jordan, Egypt, Turkey and elsewhere.

This opposition could, however, be overcome if Israel finds a way to integrate Gaza’s gas into the export equation, so that Arab publics find a way to see gas deals with Israel as acceptable: “… it would be wise for Israel to at least consider the contribution of the Palestinian dimension to these deals,” said Ezrahi. “I think it’s a mistake for Israel to rush into regional agreements without at least considering the Palestinian dimension and how it can contribute to Israeli interests.” Israel should use the Gaza Marine “as an asset as they strive to join the regional power grid, and as a bridge to the Arab world,” by selling Palestinian “gas to various markets,” or promoting a deal with the corporations developing Israel’s “Tamar and Leviathan [fields] that will allow for the sale of cheap gas to the [Palestinian] Authority.”

Hamas: The obstacle

For Israel, the existence of Hamas remains the chief obstacle to any of these scenarios. According to Simon Henderson: “The main challenge to Secretary Kerry’s vision is that the Gaza Marine natural gas field is offshore the Gaza Strip, controlled by Hamas, whose authority is not recognised by the PA, which is based in Ramallah. Additionally, the United States regards Hamas as a terrorist organisation and Washington is therefore legally constrained from cooperating with it.”

In other words, from the perspective of Israeli hawks and the entities of the Quartet - the US, EU, UN and Russia - the fundamental obstacle to both the proposed ‘peace package’ and Israel’s interests in becoming a regional energy hegemony, is the continued existence of Hamas in Gaza.

In 2007, incumbent defence minister Ya’alon advised in an influential policy paper that there was only one way to solve this problem: “It is clear that without an overall military operation to uproot Hamas control of Gaza, no drilling work can take place without the consent of the radical Islamic movement.” Ya’alon is yet another Israeli government official who endorses Martin Sherman’s IISS initiative.

Since then, successive Israeli military operations - including Operation Protective Edge - have aimed at degrading Hamas’ power in Gaza by making the entire civilian population of the strip pay the price. Through excessive military action to devastate Gaza’s critical infrastructure until much of the strip is virtually “uninhabitable,” Israel has successfully accelerated this process.

Strangulating Gaza

Under the new ceasefire agreement with Hamas after the operation, Israel had secured even more Draconian powers to enforce its ongoing siege of Gaza. This included a partial military re-occupation by maintaining a 100 metre buffer zone inside Gaza; a joint Israeli, UN and PA committee to supervise the process for goods being permitted into Gaza; tight monitoring of imports of construction materials, as well as their use inside Gaza, to guarantee they would not be used by Hamas to build ‘terror tunnels’ and weapons; and on the table for discussion, Israel’s top priority was to make the total demilitarisation of Gaza a precondition for reconstruction and rehabilitation.

Under this extraordinary scheme, Gaza will be under constant surveillance by Israeli drones, and the PA-UN supervisory committee will submit all details of homes needing rebuilding to an Israeli database for close monitoring and approval.

Against this context, the decision by the EU General Court to remove Hamas from a list of terrorist groups along with the European Parliament’s new resolution recognising “in principle… Palestinian statehood and the two-state solution,” takes on new meaning.

To move forward, what remains of the aborted Kerry-Quartet vision for ‘peace’ encompassing the exploitation of Gaza’s gas, requires Hamas’s military capabilities – already infinitesimal compared to Israeli’s $15.5 billion military budget – to be degraded to the point of being utterly negligible.

The EU’s latest measures appear designed to incentivize the Palestinians and Hamas to comply with this vision of a pliable, demilitarised Gaza as a step toward a ‘two-state’ solution dominated and controlled by Israel: the carrot. Israel’s threat and use of force to smash Gaza into an uninhabitable no-man’s land, in which the US and the EU are complicit through extensive trade and military aid to Israel, is the stick. More

 

© 2014

Peak Oil Notes December 11 2014

Peak oil notes - Dec 11 - by Tom Whipple,

The drop in oil prices continued this week as US crude stocks increased, OPEC lowered its demand forecast for next year, several OPEC countries reduced their selling prices to Asian customers, and the Saudi Oil Minster reaffirmed his intention to maintain production.

By the close on Wednesday London's Brent was down to $64.24 a barrel and NY futures were at $60.94. London’s close, below $65 a barrel, was the lowest in five years.

The drop in oil prices spread to the equities markets on Wednesday which also saw major losses. Shares in shale-drilling companies have dropped sharply as the drillers revenues have gone down. The financial press is filled with stories about “survival of the fittest” as many anticipate that several of the weaker shale oil drillers will go under unless oil prices revive soon.

The OPEC secretariat announced that the cartel’s production in November was 30.05 million b/d down by 390,000 b/d from October, but this was after the October figure was revised up by 190,000 b/d leaving a net drop of only 200,000 b/d. The secretariat has never had much proprietary information on how much oil its members are producing and is forced to rely on third parties and the press for production numbers. The cartel also reduced its forecast for its demand in 2015 to 28.9 million b/d as compared to demand of 29.4 million b/d this year.

This week's stocks report showed that US refiners are taking advantage of the low crude prices to bump up US oil refining to 16.5 million b/d, the highest level in records going back to 1989. Even with the record refining, US crude stocks increased by an unexpected 1.5 million barrels. All the refining last week left US gasoline inventories up by 8.2 million barrels and distillate inventories up by 5.6 million barrels. US “oil” production rose to 9.1 million b/d last week, the highest since 1983.

Months of steady declines in oil prices have lead to consternation across the world. Although oil importers are celebrating lower gasoline prices and the likelihood that their economies will receive an economic boost, other countries are seeing serious problems ahead as oil revenues drop precipitously and budgets must be slashed. In the US, numerous companies have announced plans to cut back on drilling next year, but in general, prices have fallen so fast that there has not been time to see all the implications of the price drop.

Comments on the current situation and just how low oil prices will go continues unabated. Tom Kloza of the Oil Price Information Service says that $35-$50 a barrel is a possibility next year if OPEC does not reduce production. In this case, average US gasoline prices would be below $2 a barrel. Iran’s President says his country is the victim of a gigantic conspiracy that is causing grave damage to his country’s economy. More

Originally published by ASPO-USA | DEC 11, 2014

 

© 2014

Signs of stress must not be ignored, IEA warns in its new World Energy Outlook

Energy sector must tackle longer-term pressure points before they reach breaking point

Events of the last year have increased many of the long-term uncertainties facing the global energy sector, says the International Energy Agency’s (IEA) World Energy Outlook 2014 (WEO-2014). It warns against the risk that current events distract decision makers from recognising and tackling the longer-term signs of stress that are emerging in the energy system.

In the central scenario of WEO-2014, world primary energy demand is 37% higher in 2040, putting more pressure on the global energy system. But this pressure would be even greater if not for efficiency measures that play a vital role in holding back global demand growth. The scenario shows that world demand for two out of the three fossil fuels – coal and oil – essentially reaches a plateau by 2040, although, for both fuels, this global outcome is a result of very different trends across countries. At the same time, renewable energy technologies gain ground rapidly, helped by falling costs and subsidies (estimated at $120 billion in 2013). By 2040, world energy supply is divided into four almost equal parts: low-carbon sources (nuclear and renewables), oil, natural gas and coal.

In an in-depth focus on nuclear power, WEO-2014 sees installed capacity grow by 60% to 2040 in the central scenario, with the increase concentrated heavily in just four countries (China, India, Korea and Russia). Despite this, the share of nuclear power in the global power mix remains well below its historic peak. Nuclear power plays an important strategic role in enhancing energy security for some countries. It also avoids almost four years’ worth of global energy-related carbon-dioxide (CO2) emissions by 2040. However, nuclear power faces major challenges in competitive markets where there are significant market and regulatory risks, and public acceptance remains a critical issue worldwide. Many countries must also make important decisions regarding the almost 200 nuclear reactors due to be retired by 2040, and how to manage the growing volumes of spent nuclear fuel in the absence of permanent disposal facilities.

“As our global energy system grows and transforms, signs of stress continue to emerge,” said IEA Executive Director Maria van der Hoeven. “But renewables are expected to go from strength to strength, and it is incredible that we can now see a point where they become the world’s number one source of electricity generation.”

The report sees a positive outlook for renewables, as they are expected to account for nearly half of the global increase in power generation to 2040, and overtake coal as the leading source of electricity. Wind power accounts for the largest share of growth in renewables-based generation, followed by hydropower and solar technologies. However, as the share of wind and solar PV in the world’s power mix quadruples, their integration becomes more challenging both from a technical and market perspective.

World oil supply rises to 104 million barrels per day (mb/d) in 2040, but hinges critically on investments in the Middle East. As tight oil output in the United States levels off, and non-OPEC supply falls back in the 2020s, the Middle East becomes the major source of supply growth. Growth in world oil demand slows to a near halt by 2040: demand in many of today’s largest consumers either already being in long-term decline by 2040 (the United States, European Union and Japan) or having essentially reached a plateau (China, Russia and Brazil). China overtakes the United States as the largest oil consumer around 2030 but, as its demand growth slows, India emerges as a key driver of growth, as do sub-Saharan Africa, the Middle East and Southeast Asia.

“A well-supplied oil market in the short-term should not disguise the challenges that lie ahead, as the world is set to rely more heavily on a relatively small number of producing countries,” said IEA Chief Economist Fatih Birol. “The apparent breathing space provided by rising output in the Americas over the next decade provides little reassurance, given the long lead times of new upstream projects.”

Demand for gas is more than 50% higher in 2040, and it is the only fossil fuel still growing significantly at that time. The United States remains the largest global gas producer, although production levels off in the late-2030s as shale gas output starts to recede. East Africa emerges alongside Qatar, Australia, North America and others as an important source of liquefied natural gas (LNG), which is an increasingly important tool for gas security. A key uncertainty for gas outside of North America is whether it can be made available at prices that are low enough to be attractive for consumers and yet high enough to incentivise large investments in supply.

While coal is abundant and its supply relatively secure, its future use is constrained by measures to improve efficiency, tackle local pollution and reduce CO2 emissions. Coal demand is 15% higher in 2040 but growth slows to a near halt in the 2020s. Regional trends vary, with demand reaching a peak in China, dropping by one-third in the United States, but continuing to grow in India.

The global energy system continues to face a major energy poverty crisis. In sub-Saharan Africa (the regional focus of WEO-2014), two out of every three people do not have access to electricity, and this is acting as a severe constraint on economic and social development. Meanwhile, costly fossil-fuel consumption subsidies (estimated at $550 billion in 2013) are often intended to help increase energy access, but fail to help those that need it most and discourage investment in efficiency and renewables.

A critical “sign of stress” is the failure to transform the energy system quickly enough to stem the rise in energy-related CO2 emissions (which grow by one-fifth to 2040) and put the world on a path consistent with a long-term global temperature increase of 2°C. In the central scenario, the entire carbon budget allowed under a 2°C climate trajectory is consumed by 2040, highlighting the need for a comprehensive and ambitious agreement at the COP21 meeting in Paris in 2015.

The World Energy Outlook is for sale at the IEA bookshop. Journalists who would like more information should contact ieapressoffice@iea.org.

Download the following resources:

• The WEO-2014 executive summary
• IEA Executive Director Maria van der Hoeven and Chief Economist Fatih Birol's presentation

About the IEA

The International Energy Agency is an autonomous organisation that works to ensure reliable, affordable and clean energy for its 29 member countries and beyond. Founded in response to the 1973/4 oil crisis, the IEA’s initial role was to help countries co-ordinate a collective response to major disruptions in oil supply. While this remains a key aspect of its work, the IEA has evolved and expanded. It is at the heart of global dialogue on energy, providing authoritative research, statistics, analysis and recommendations.

Alternative Download

 

© 2014

Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas

As we previewed on Friday, when we reported that "Russia Nears Completion Of Second "Holy Grail" Gas Deal With China", moments ago during the Asia-Pacific Economic Cooperation forum taking place this weekend in Beijing, Russia and China signed 17 documents Sunday, greenlighting a second "mega" Russian natural gas to China via the so-called "western" or "Altay" route, which as previously reported, would supply 30 billion cubic meters (bcm) of gas a year to China.

Russian President Vladimir Putin and Chinese leader Xi Jinping

Among the documents signed between Russian President Vladimir Putin and Chinese leader Xi Jinping were the memorandum on the delivery of Russian natural gas to China via the western route, the framework agreement on gas supplies between Russia's Gazprom and China's CNPC and the memorandum of understanding between the Russian energy giant and the Chinese state-owned oil and gas corporation.

"We have reached an understanding in principle concerning the opening of the western route," Putin said. "We have already agreed on many technical and commercial aspects of this project, laying a good basis for reaching final arrangements."

RIA adds, citing Gazprom CEO Alexei Miller, that the documents signed by Russia and China on Sunday define the western route as a priority project for the gas cooperation between the two countries.

"First of all these documents stipulate that the "western route" is becoming a priority project for our gas cooperation," Miller said, adding that the documents provide for the export of 30 billion cubic meters of Russian gas to China annually for a 30-year period.

Miller noted that with the increase of deliveries via the western route, the total volume of Russian gas deliveries to China may exceed the current levels of export to Europe in the medium-term perspective. In other words, China has now eclipsed Europe as Russia's biggest, and most strategic natural gas client. More:

Miller, who heads Russia's state-run energy giant, told reporters that "taking into account the increase in deliveries via 'western route,' the volume of supplied [natural gas] to China could exceed European exports in the mid-term perspective."

This came after Russian and Chinese energy executives signed on Sunday a package of 17 documents, including a framework deal between Gazprom and China's energy giant CNPC to deliver gas to China via the western route pipeline.

Miller said Gazprom and CNPC were in talks on a memorandum of understanding that would see Russia bring gas to China through the western route pipeline, as well as a framework agreement between the two state-owned companies to carry out the deliveries.

The western route will connect fields in western Siberia with northwest China through the Altai Republic. Second and third sections may be added to the pipeline at a later date, bringing its capacity up to 100 billion cubic meters a year.

The facts and figures of the Altay deal are broken down in the following map courtesy of RT

Also of note, among the business issues discussed by Putin and Xi at their fifth meeting this year was the possibility of payment in Chinese yuan, including for defense deals military, Russian presidential spokesman Dmitry Peskov was cited as saying by RIA Novosti. More from RIA:

Russia's President Vladimir Putin and China's President Xi Jinping have discussed the possibility of using the yuan in mutual transactions in different fields of cooperation, Kremlin spokesman Dmitry Peskov said Sunday.

"Much attention has been paid to the topic of mutual payments in diverse fields ... in yuans which will help to strengthen the yuan as the region's reserve currency," Peskov said commenting on the meeting held between Putin and Xi on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Beijing.

On October 13, Russian Economic Development Minister Alexei Ulyukayev announced that Russia was considering Chinese market to partially substitute access to the financial resources of the European Union and the United States.

The European Union and the United States have imposed several rounds of economic sanctions on Russia over its alleged involvement in the Ukrainian crisis, a claim Moscow has repeatedly denied. The restrictions prohibit major Russian companies from seeking financing on western capital markets.

Meanwhile, as China and Russia keep forging ahead in a world in which the two becomes tied ever closer in a symtiotic, dollar-free relationship, this is how the US is faring at the same meeting: "China, U.S. Parry Over Preferred Trade Pacts at APEC: Little Progress Made on Separate Trade Deals at Asia-Pacific Economic Cooperation Forum."

The U.S. blocked China’s initiatives because it worried that launching FTAAP talks would impede progress on a separate trade deal, the Trans-Pacific Partnership. The ministers’ statement said that any FTAAP deal would build on "ongoing regional undertakings"—a reference to TPP and other regional trade deals.

"The Chinese got all they could expect—a reaffirmation that we all share in the vision of having a regional integrated model" for trade, said U.S. Chamber of Commerce Executive Vice President Myron Brilliant.

U.S. Secretary of State John Kerry said Saturday that negotiating the TPP "is a battle that we absolutely must win." Ministers from the 12 TPP nations met Saturday afternoon to try to narrow differences, including disputes between the U.S. and Japan over agriculture and auto trade. On Monday, the leaders of the TPP nations are again scheduled to discuss the trade deal, although no breakthrough is expected.

The U.S. is trying to tie an ITA deal to progress on other trade deals with China, as a way to increase its leverage with Beijing. "How the ITA negotiations proceed is an important and useful data point" on China’s ability to negotiate an investment treaty with the U.S., Mr. Froman said.

Trade analysts say the U.S. also hopes to use China’s desire to have the Beijing conference produce concrete results as leverage. This is the first major international summit held in China since Xi Jinping took over as Communist Party chief in 2012, and the government wants to use the session to affirm China’s greater role in the world.

Good luck trying to "increase US leverage with Beijing" using a trade conference being held in Beijing as the venue.

In other words instead of actual trade agreements, the US merely jawboned and "shared visions."

Then again, as noted here since 2010, in a world in which one can merely "print one's way to prosperity", what is the need for actual trade? Surely, which China and Russia are expanding their commercial ties at the expense of Europe, the US can continue to pretend it is the world's only superpower and has no need for either Russia or China. After all, Mr. Chairmanwoman can always go back to work and print some more of that "world reserve currency." More

 

 

 

© 2014