Abstract
The discoveries of giant Tamar and Leviathan gas fields in Israel’s Mediterranean waters in 2009–2010 by an Israeli–American consortium came at a specially opportune moment, as supplies from Egypt virtually collapsed in 2012 owing to disturbances caused by the Arab Spring. Over the last decade, Israel’s natural gas discoveries, which are part of offshore gas findings in Cyprus and Egypt, have transformed the Eastern Mediterranean region into a new energy region, with potential for both cooperation and conflict. Keen on extracting economic and geopolitical benefits from its energy windfall, Israel has focused on creating an Eastern Mediterranean Gas Forum including Egypt, Jordan Palestine, Cyprus, Greece and Italy. The later three are key to Israeli plans to supply European markets through a sub-sea pipeline. The European Union, despite its criticism of Israeli settlements in Palestinian territories, has backed the Israeli plans, with the intention of reducing dependency on the Russian gas. However, Turkey, the leading naval power in the Eastern Mediterranean and gatekeeper of Middle Eastern gas supplies to Europe, has been alarmed by what it sees as an emergent anti-Ankara bloc led by Israel and adopted a more militarily assertive role in the region. In December 2019, as Israel, Cyprus and Greece were poised to sign an agreement on the EastMed pipeline, Ankara threw a spanner by signing a maritime border delineation deal with Libya, redefining Exclusive Economic Zones in a way that gives Turkey more say in gas exploration and pipeline construction. Subsequently, the Turkish navy intercepted an Israeli ship in Cypriot waters, escalating tensions over drilling in contested waters.
The Eastern Mediterranean gas discoveries have not received the same attention in the academia as they have from media and the policy community, where discussions have focused on emerging trends of regionalisation in the Eastern Mediterranean, potential to influence regional, international energy markets and geopolitical implications of the discoveries. Sujata Aishwarya’s exhaustive study of ‘Israel’s successful gas story’, covering an entire spectrum of issues from domestic governance and economic impact to strategic implications is a very timely and relevant contribution.
Thematically organised into four chapters, this book charts the trajectory of the fast development of the regulatory governance framework for the sector in light of a close working relationship between the government, foreign and Israeli investors, a relationship that came under scrutiny in a contentious public debate, and then it proceeds to provide an assessment of the largely positive economic impact of natural gas industry and an analysis of the broader geopolitical implications of Israel’s transformation from a net energy importer to energy surplus country. Chapter 1 provides a systematic overview of the key features of the Israeli energy sector and supply strategies. It goes on to situate how the development of the natural gas sector has transformed the energy landscape of the country, with natural gas rapidly replacing coal and oil in the power generation mix, increasing adoption of natural gas in the transportation sector and energyintensive industries. It also describes how the increasing energy dependence on offshore gas is strengthening Israel’s maritime orientation, giving a boost to the Israeli navy, which has been the smallest part of Israel Defence Forces (IDF).
Chapter 2 first gives a historical overview of commercially viable natural gas discoveries in Israel’s Mediterranean waters and the evolution of institutional and legal structures for the development of the gas sector in the country. Next, it discusses the contentious public debates and juridical challenges which arose in the context of the 2014 ruling by the Antitrust Tribunal that the partnership of America’s Nobel Energy and the Delek Group of Israel—who discovered the largest gas fields Tamar and Leviathan and were seeking to develop them— constituted a de-facto monopoly. The ensuing battle by Netanyahu government for its right to overrule the tribunal ruling is discussed in detail.
Chapter 3 discusses how the National Gas framework liberalised the emerging gas sector, providing for stability and competition in the nascent gas market. It enumerates the various long-term Gas Sale and Purchase Agreements (GSPA) signed by national and private power producers with the dominant players, namely Noble Energy and Delek Group. Surveying natural gas consumption trends in the Israeli economy, it notes the positive economic impact of increasing use of natural gas as a source of energy in terms of ‘significant cost-cutting and productivity gains across several sectors together with an increase in the competitiveness of the manufactured products’ (pp. 169). It also discusses how the gas revolution in Israel triggered a debate on the issue of exporting natural gas and the spectre of the so-called ‘Dutch disease’—with massive export revenue leading to exchange rate appreciation which could weaken other exporting industries—and the necessity of setting up a sovereign wealth fund. The Israeli Citizens Fund was established in July 2014 under the supervision of Bank of Israel and led by the Finance Ministry. The fund will be constituted by charging companies exploiting Israel’s gas and other mineral resources a progressive tax rate on all windfall profits between 25 and 42 per cent.
Chapter 4 is an analysis of the strategic implications of Israeli gas boom for the Mediterranean region and the opportunities and challenges in using gas as a ‘diplomatic–strategic resource’ tied to foreign policy objectives. The reversing of the flow of subsea pipeline connecting El-Arish in Northern Sinai to the Israeli coastal city of Ashkelon—through which Egypt was supplying nearly half of the natural gas consumed in Israel until 2010—to now export gas from Israel’s Tamar and Leviathan offshore fields is a marker of rapidly changing energy dynamics in the Eastern Mediterranean. As the Egyptian revolution and Syrian civil war laid to waste the geopolitical order in the Eastern Mediterranean, it also had the effect of sealing the fate of regional gas operations centred on Egypt as the major regional exporter. The unravelling of the ambitious Euro-Arab Mashreq Gas Market project created space for the emergence of new gas producers. In 2018, Delek- Noble consortium signed a US$15 billion deal not only to supply the Egyptian domestic markets but also to use Egypt’s liquefaction capacity to supply important markets in Asia, including India.
Israel, with its 318 billion cubic meter (bcm) Tamar field that went online in 2013, and the 606 bcm Leviathan field that went on stream in December last year, hopes to supply Europe through a trans-Mediterranean pipeline and instrumentalise gas cooperation towards economic rapprochement with the Arab countries in the region. However, supplying gas to European markets at a competitive price will be a challenge for Israel, especially at a time when global gas prices remain low. The 2,000 km long EastMed gas pipeline between Israel, Cyprus and Greece, expected to deliver 10 bcm of natural gas to the European Union, will have to compete with Southern Gas Corridor pipeline from Azerbaijan to Italy delivering about the same amount of 10 bcm per year by 2020. Apart from the questions over the financial viability of constructing what will be the world’s deepest and longest pipeline, the fate of the EastMed pipeline will also depend on Israel’s relations with Turkey. Turkey’s deteriorating ties with Israel and posturing in the Mediterranean is providing an impetus for the deepening of Israel–Greece–Cyprus partnership, in energy, trade and security spheres.
Similarly, the US$10 billion deal, signed in 2016 between Delek-Nobel consortium and Jordan Electric Power Company for supplying 45 bcm gas for over 45 years, has faced domestic opposition in Jordan. It was referred to a constitutional court after the Jordanian parliament questioned the legality of the deal on the ground that it was never presented to the parliament for approval. Given that Turkey, Jordan and Egypt are all US allies, the USA has its role cut-out that is nudging its ‘most important allies in the region to stabilise their relationship by giving it a solid economic foundation’ (pp. 196). The geoeconomic logic of using schemes of economic integration—regional gas cooperation in this case— to achieve geopolitical and security goals is all too visible in Israel’s efforts at drawing not only in Egypt and Jordan but also the prospects of transmitting natural gas for Palestinian power plants as part of the ‘economic plan’ associated with the U.S. proposal of the so-called ‘deal of the century’. Through her detailed historical analysis of Israel’s relations and energy deals with Egypt and Jordan, Aishwarya demonstrates that ‘energy deals take place and pipelines get built when political relations between states are normal rather than reverse. Any change or perversion of political relations can jeopardise energy trade’ (pp. 12–13).
This book, depicting in a microscopic manner the development of Israel’s gas sector, the transformation of the country from net importer to an exporter within the macroscopic context of wider energy politics and strategic relations in the Eastern Mediterranean region, is a timely and relevant contribution, especially given that India is looking for new partners for natural gas cooperation, augmenting supplies from traditional suppliers. It would be of immediate use to researchers interested in economics and geopolitics of Israeli gas and those who keep an eye on shifting geopolitical trends in the Middle East.