NO. 43 NOVEMBER 2019 Introduction

Israel’s Contradictory Gas Export Policy The Promotion of a Transcontinental Pipeline Contradicts the Declared Goal of Regional Cooperation Stefan Wolfrum

In order to market its gas reserves, Israel has until now relied on exports to Egypt and Jordan. Through regional networking in the energy sector – for example, within the framework of the Eastern Mediterranean Gas Forum (EMGF), which was founded at the beginning of 2019 – the Israeli government hopes to improve its political relations in the region. At the same time, Israel is investing hope in the building of the EastMed gas pipeline. Its construction would create a direct export link to Europe, but it would thereby also undermine energy cooperation with its Arab neighbours. The European Union (EU) should promote regional energy cooperation, as this could promote part- nerships in other areas. Accordingly, the EU should not support the construction of the EastMed pipeline.

Israel is estimated to have between 800 bil- awarded all exploitation rights for the lion to 1 trillion cubic metres (m³) of natu- Tamar, Leviathan, Karish, and Tanin gas ral gas. Its own consumption amounts to fields to the American-Israeli consortium around 10 billion m³ per year; in 2017 this Noble Energy/Delek Drilling without a call corresponded to around 35 per cent of total for tenders, since they had discovered the energy consumption. However, the exploi- gas deposits. This was supposed to acceler- tation of the gas fields for the export of ate the development of the gas fields. In this gas surplus has not progressed far. This addition, the Israeli state-owned company is the result of Israel’s hastily conceived Israel Electric Corporation (IEC) has granted energy policy, which is a result of the the consortium a stable purchase price until 2011–2013 energy crisis. 2021 that well exceeds the market price. Ulti- Back then, two developments came to- mately, due to a lack of competitive pres- gether: First, continued attacks on the pipe- sure, Noble/Delek’s monopoly position did lines in the Sinai forced Egypt – Israel’s not lead to a swift development of new gas main gas supplier – to suspend gas sup- fields; moreover, it violated Israeli antitrust plies to Israel in summer 2011; second, law. Legal actions followed – interventions the only developed Israeli gas field, Yam by the Cartel Office forced Noble/Delek to Tethys, was depleted at the beginning of sell some of its shares in the gas fields, there- 2012. As a result, the Israeli government by further delaying their development.

Controversial Export Strategy ing rapidly: Although Egypt was dependent on gas imports in the past, it has been able In the debate that followed, critics from the to cover its own needs through domestic Ministry of Energy and the Israeli Institute natural gas production since the beginning for Economic Planning warned that national of 2019. However, the Egyptian government gas reserves are indispensable for Israel’s has in the past invested heavily in gas pro- strategic autonomy and its own energy cessing and liquefaction plants; the costs needs. The Israeli government, the foreign would only be amortised through high levels ministry, and the National Security Council of exports, but this would require the coun- on the other hand have maintained their try to continue importing gas. This market export intentions to this day; they commis- approach could subsequently make Egypt sioned the interministerial “Tzemach” com- a hub for the export of liquefied petroleum mittee to develop a government policy. Ac- gas. High population growth also suggests cording to its 2012 report, up to 50 per cent that Egypt will have to import natural gas of gas reserves could be exported. In 2018, again in the future. the “Adiri” committee put this assessment After disputes between the IEC and the into perspective in a five-year evaluation: government in Cairo over gas supplies that From 2030 onwards, an energy shortage is began in 2011, the two countries reached to be expected in Israel, as gas reserves are an agreement in 2018: Israel is to annually likely to run out due to increasing levels export around 7 billion m³ of natural gas to of consumption (forecast for 2040: 35 bil- Egypt for 10 years. lion m³ annually) and the conversion of For gas exports, Israel has a pipeline near electricity generation from coal to gas. Sodom, which has been pumping small In the wake of the 2011–2013 energy quantities of gas to Jordan since 2017, and crisis, this unclear policy confused foreign the Arish-Ashkelon pipeline, which has investors and kept them away from the been idle since 2011. Noble/Delek acquired Israeli market. For example, in 2014 the 39 per cent of the shares for this pipeline Australian company Woodside unexpect- for $518 million at the end of 2018. Accord- edly withdrew from a share purchase in ing to expert reports, however, the export the Leviathan gas field, and Edison – an connection at Ashkelon can only be sup- already active energy company – left the plied with 2 to 3 billion m³ per year via the Israeli market in August 2018. Only the national Israeli pipeline system. Further- Greek company Energean and an Indian more, the transport direction of the pipe- consortium acquired concessions in two line has to be reversed, which is costly and rounds of tenders for production licences. still delays Israeli gas supplies. Another Energean explained that the time necessary argument against Israeli exports is that the for the development of the Karish and Egyptian pipeline network on the Sinai Tanin fields depends not only on Israeli Peninsula is already being used for exports domestic demand, but above all on export to Jordan in the opposite direction. Stop- prospects. The Israeli government therefore ping exports is unlikely because Cairo in- regards the expansion of export opportu- tends to supply half of Jordan’s gas require- nities as a means of developing, and thus ments by 2019. If Israel wants to consoli- exploiting, its gas reserves economically. date or even expand its energy cooperation with neighbouring countries, which is nec- essary to develop its own gas fields, it must Expansion of Regional by all means invest promptly in additional Cooperation infrastructure. The construction of a third export pipe- The geographically closest customers for line, which will be completed by the end of Israeli natural gas are Jordan and Egypt, but 2019 and is expected to export 3 billion m³ the market situation in the region is chang- of gas to Jordan annually, is also not pro-

SWP Comment 43 November 2019

2 ceeding without problems. Since many 2013. At the end of 2015, the European Jordanians regard cooperation with Israel Commission, with the support of the Com- as treason against the Palestinians, there is missioner for Climate Policy and Energy, resistance among the population. Jordanian Miguel Arias Cañete, adapted this regula- parliamentarians are threatening to termi- tion by adding the pipeline project to the nate the import treaty or are calling for second PCI list. The Council and EP agreed sabotage of the pipeline. to the list, and it came into effect two In order to nevertheless advance regional months later. gas cooperation, Israel joined the EMGF as Construction of the EastMed would take a founding member at the beginning of four to five years and cost around 7 billion 2019. The forum also includes Egypt, Jordan, euros, with the EU bearing half of the Cyprus, Greece, Italy, and the Palestinian cost. The other half would be financed by Authority. It aims to create a common gas IGI Poseidon – a subsidiary of the Greek market around the Eastern Mediterranean DEPA – and the Italian Edison. IGI Posei- by coordinating the energy policies of mem- don carried out a feasibility study in 2016 ber countries. At present, the EMGF is a that was financed with 2 million euros loose association and serves only communi- from the Connecting Europe Facility pro- cation purposes. Nevertheless, it is a prom- gramme. In 2022, the development phase ising format: Firstly, it is intended to har- and planning of the front-end engineering monise the expectations and objectives of should be completed. The final implemen- the gas importers and exporters in the tation will then depend on the EU Commis- region; secondly, it aims to guarantee secu- sion, which approves the release of funds. rity of supply; thirdly, it will promote inter- The pipe linkage to the EU would offer dependence through price collusion and by Israel a secure sales market and a way out merging infrastructure in the region. Israel, of the energy isolation of the Middle East. in particular, hopes that cooperation in the This would make the EastMed pipeline an EMGF will improve its relations with Jordan alternative to reforms of its own energy and Egypt: from the current security co- market and the costly expansion of infra- operation to the expansion of economic structure with its partly reluctant neigh- relations to a normalisation and deepening bours Egypt and Jordan. But although the of political relations. feasibility study considers the construction of the world’s longest pipeline to be realis- tic, it is not just the high costs and the The EastMed Pipeline security situation in the Eastern Mediter- ranean region that speak against it. However, Israel is not only counting on ex- ports to the region, but also on the planned construction of a pipeline to Europe. Cyprus, Trade-off between Regional and Greece, and Italy also support such a trans- Transcontinental Cooperation? continental pipeline. In 2015 they asked the EU Commission to define the so-called For Israel, the construction of the gas link EastMed project as a Project of Common to Europe is attractive, primarily for secu- Interest (PCI) (No. 7.3.1) and to include it in rity reasons. According to Israeli Energy the Ten-Year Network Development Plan Minister Yuval Steinitz, direct gas trade (Project Code: TRA-N-330), which aims to with the EU would deprive Arab states of improve connectivity of the energy infra- the opportunity to put Israel under political structure in the EU. The pipeline project pressure. Conversely, however, this project thus fits into the framework of the South- would undermine any regional cooperation ern Gas Corridor, which the European Par- in the energy sector. The exclusive access liament (EP) and the Council of the Euro- that Israel, Cyprus, and Greece would get to pean Union adopted in Regulation 347/ the EU gas market with the EastMed project

SWP Comment 43 November 2019

3 would marginalise the Arab countries of an expensive transcontinental pipeline the EMGF, and thereby paralyse the organi- project. The economic benefit of the project sation. The economic and political potential is doubtful anyway, because potential sup- of a common gas market in the Eastern plies from the Eastern Mediterranean (ini- Mediterranean, as envisaged by the EMGF, tially 10 billion m³ per year) are insignifi- would remain untapped. cant in relation to the total European Israel’s decision between regional and demand. The EU could also achieve its ob- European sales markets does not have to jective of diversifying gas imports from be a zero-sum game though: Through long- third countries without pipeline construc- term integration into the regional gas mar- tion. For example, a study by the EU’s © Stiftung Wissenschaft ket, the European market could also be Directorate-General for External Policies in und Politik, 2019 served if natural gas from the region were 2017 points to Egypt’s key role in the gas All rights reserved transported to the liquefaction plants in market of the Eastern Mediterranean. It Egypt. This would be more cost-effective recommends relying on existing Egyptian This Comment reflects than pipeline construction and would spur infrastructure in order to supply the Euro- the author’s views. the gas suppliers Cyprus and Israel towards pean market flexibly. Investments in addi- The online version of far-reaching cooperation with Egypt as an tional infrastructure would only make this publication contains energy hub. sense once regional cooperation was func- functioning links to other Economic cooperation would also have tioning. In addition, the EU has declared an SWP texts and other relevant an important side effect: The developing interest in intergovernmental cooperation sources. interdependence would not be easily re- in the region; it already supports it in the SWP Comments are subject versed and could lead to an expansion of Euro-Mediterranean Partnership, the Barce- to internal peer review, fact- relations in the region. In particular, the lona Process (today: Union for the Mediter- checking and copy-editing. EMGF could contribute towards resolving ranean), and the European Neighbourhood For further information on energy and inter-state conflicts, such as Policy. our quality control pro- allocation of the Aphrodite gas field be- It would therefore be appropriate for the cedures, please visit the SWP website: https://www.swp- tween Israel and Cyprus. The dynamics EU to reinforce the EMGF’s claim to unify berlin.org/en/about-swp/ of the emerging gas market in the Eastern and coordinate the energy market in the quality-management-for- Mediterranean have, for example, already Eastern Mediterranean. The uncertain eco- swp-publications/ led to Lebanon – not a member of the nomic benefits of pipeline construction EMGF itself – being put under pressure to would be offset by the considerable politi- SWP negotiate the course of its maritime borders cal benefits of regional cooperation. Since Stiftung Wissenschaft und Politik with its arch-enemy, Israel. The member- integration into the region through co- German Institute for ship of the Palestinian Authority in the operation in the gas market would also International and EMGF could also mean a new constellation offer political advantages for Israel, the EU Security Affairs in the Middle East conflict. Israel has al- should not further promote the EastMed ready engaged in talks with the Palestinians pipeline project. Corresponding options Ludwigkirchplatz 3–4 10719 Berlin about exploiting the gas reserves off the for action would be: a debate in the EP, an Telephone +49 30 880 07-0 coast of Gaza. agenda item in the Council, and the removal Fax +49 30 880 07-100 of the project from the PCI list by the EU www.swp-berlin.org Commission at the next proposal in 2021. [email protected] Conclusions

ISSN 1861-1761 doi: 10.18449/2019C43 The EU should take a clear stand against Israel’s contradictory gas export policy: (English version of Regional energy cooperation in the Eastern SWP-Aktuell 58/2019) Mediterranean must take precedence over

Stefan Wolfrum is research assistant in the project “Israel in a Conflicting Regional and Global Environment: Internal Developments, Security Policy and External Relations”. The project is part of the SWP Middle East and Africa Division and is funded by the Federal Foreign Office.

SWP Comment 43 November 2019

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