Cairo – Potential for Conflict: Egypt Eyeing Stake in Israel’s Gas Fields

Cairo – Egypt’s Petroleum Ministry is reported to be considering claiming a stake in the big natural gas fields discovered in the eastern Mediterranean while Greece, a potential customer, has begun exploratory talks on moving the gas to the European market.

The Egyptian newspaper Al-Masri al-Youm Tuesday quoted Minister of Petroleum and Mineral Resources Sameh Fahmi as saying the Cairo government is “studying the precise coordinates of the maritime borders in order to determine our share of the reserves.”

That implied that Egypt, already the main natural gas producer and exporter in the eastern Mediterranean, may find itself at odds with Israel.

It signed a historic peace agreement with the Jewish state in 1979 but it’s largely been a cold peace even though Cairo exports gas to Israel.

The finds off Israel’s northern coast, made in 2009-10, have already drawn accusations by Beirut of Israeli encroachment into Lebanese waters and threats of violence from both sides.

But the potential for conflict is even wider. The U.S. Geological Survey reported in 2010 that the Levant Basin, stretching from the Jordan River into the eastern Mediterranean, the West Bank, the Gaza Strip, Lebanon and Syria, could contain up to 122 trillion cubic feet of natural gas.

“These discoveries have added a new, hitherto unseen dimension to the Arab-Israeli conflict,” observed analyst Walid Khadduri, former editor of the Middle East Economic Survey, a prominent energy industry newsletter.

“This geopolitical dimension is not limited to the Israeli-Palestinian or Israel-Lebanese disputes … but will also encompass several other Arab countries, particularly those that export natural gas, and especially in the event Israel intends to export to European markets.”

Khadduri, writing in the pan-Arab daily Al Hayat, noted that “preliminary contacts in this regard have already started with another source of gas being made to available to gas-thirsty Europe … a source that overlooks the Mediterranean directly, obviating the need for pipelines crossing several countries, as it can be exported as liquefied gas.

“The current disputes …are somewhat old. What is new, however, is the competition over gas markets.”

Israel’s gas bonanza offers geopolitical opportunities as well as perils.

The Jewish state is negotiating with Cyprus, most of which is ruled by Greek Cypriots, and with Greece about transporting gas to them and on to the vast European market.

Greek Minister of Investments Haris Pamboukis said Saturday that Athens is conducting exploratory talks with Israel about moving gas from the main Israeli gas field, Leviathan, to Europe. “We’re a natural road to the Balkans and Europe,” he said.

But Egypt may be a more natural partner. It already has a liquefied natural gas terminal on the Mediterranean coast where tankers carry the LNG to Europe, Asia and North and South America.

It is conceivable — although far from certain given the prevailing relations between Israel and Egypt — that the Israelis might find it convenient to export their gas in liquid form through Egypt rather than engage in costly undersea pipelines and other infrastructure.

Egypt has proven gas reserves of 77 trillion cubic feet, three times Israel’s estimated reserves, and is established as the main gas producer in the eastern Mediterranean. It serves Jordan, Lebanon and Syria as well as Israel.

According to the U.S. Geological Survey, Egypt’s Nile Delta Basin could contain as much as 223 trillion cubic feet of gas.

“Israel has several potential export options of its own but all would pose technical and, often, political challenges,” observed Simon Henderson, director of the Gulf and Energy Program at the Washington Institute for Near East Policy.

“Greece has been mooted as a possible market, perhaps by undersea pipeline; India is another potential market; and the Russian giant Gazprom is currently proposing a joint venture,” Henderson wrote in a Jan. 4 analysis.

“Israel’s most commercially viable option might be to export surplus gas as LNG, converted via existing facilities in Egypt.”

He concluded that the energy developments in the eastern Mediterranean, long a U.S. preserve, mean that Washington “needs to pay careful attention, since these … offer opportunities for U.S. companies as well as the potential for friction between U.S. allies.

“Although the amounts of gas discovered so far seem unlikely to change the world, they could certainly change the eastern Mediterranean.”