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Israel, Cyprus deal on gas, Lebanon snubs talks

The Noble Energy company’s offshore oil and gas rig 185 kilometers off Cyprus’ southern coast.

Israel’s biggest gas discovery, potentially turning the fuel importer into an exporter, is prompting a race by nations from Lebanon to Turkey to tap similar deposits in disputed waters of the East Mediterranean.

Noble Energy is developing the Leviathan and Tamar fields off Israel that hold about 30 trillion cubic feet of gas, more than triple the U.K.’s remaining reserves and worth about $670 billion at today’s prices. The Houston-based company is also behind the Aphrodite discovery off Cyprus.

With the U.S. estimating the region holds about 122 trillion cubic feet of gas, enough to supply the world for one year, Lebanon and Turkey stepped up prospecting. Territorial disputes will have to be resolved first or the potential will remain untapped.

“All sides are looking at the eastern Mediterranean in a new light, but at the same time border disputes remain very important,” said Charles Gurdon, managing director of London-based risk assessor Menas Associates. “In the end, most of these cases will have to go to international arbitration.”

Countries in the region will have to temper disputes over maritime borders and sovereignty before companies such as BP, Total and Royal Dutch Shell can realize its potential as an export hub, according to the Observatoire Mediterraneen de l’Energie, an industry group.

“Joint exploitation of resources may change the whole political situation for the benefit of the region,” said Sohbet Karbuz, an oil and gas director at OME. “Energy can also become an extension of politics by other means.”

Lebanon and Israel have no defined maritime border, while Turkey doesn’t recognize the Greek Cypriot-led government of the Republic of Cyprus and relations with Israel have soured since Turkish activists died on a Gaza-bound flotilla two years ago. Tensions boiled over when Turkey sent an exploration vessel accompanied by warships and jets to stop Cyprus drilling for oil and gas last year.

“The sides are implacably opposed, whether it’s Northern and Southern Cyprus, whether it’s Turkey and Cyprus, whether it’s Israel and Lebanon,” said Gurdon at Menas, which advises ExxonMobil, BP and Chevron among others. “In the end, people want to determine where the territory starts and stops.”

Cyprus will award permits covering 12 offshore blocks south of the island in its second licensing round, open for bids until May, according to Solon Kassinis, director of the energy service at the Commerce, Industry and Tourism Ministry. Turkey also plans to start drilling for oil off Northern Cyprus later this month, Energy Minister Taner Yildiz said in Istanbul Thursday.

Egypt is planning to hold a licensing round in the Mediterranean after the Leviathan and Aphrodite discoveries, Gurdon said in a presentation in London Thursday.

The East Mediterranean could become the “second North Sea” following Cyprus’ first offshore gas discovery last year, Kassinis said.

“The Lebanese have systematically refused to talk to us about border issues, whether territorial or maritime, and have unilaterally submitted their claims to the U.N.,” said Yigal Palmor, an Israeli Foreign Ministry spokesman. “We therefore have no choice but to submit our own claims to the U.N. as well, but the preferred solution is obviously direct negotiations.”

The North Sea, where Britain and Norway pump most of the oil and gas, is the world’s sixth-largest supplier of crude. While it still holds more than 26 billion barrels of oil equivalent resources, extraction peaked at the beginning of the last decade, U.K. government data show.

As North Sea production declines, energy producers are looking to other regions, including the Mediterranean, to meet rising gas demand as countries seek alternatives to Russian supplies.

Cyprus is working with Israel, 480 kilometers south across the Mediterranean Sea, on the potential construction of a pipeline to connect their gas fields. The link would allow the countries to meet domestic demand before liquefying the fuel for export, Israeli Prime Minister Benjamin Netanyahu said on Feb. 16.

Israel is examining plans to ship liquefied natural gas, or LNG, as far as Asia after 2018, said Gerry Peereboom, a director at Noble Energy. Israel may also pump gas to Egyptian LNG plants, said Raafat al-Beltagy, deputy chairman of Egyptian Natural Gas Holding Co.

“Israel is now in the position to decide whether they’ll allow the companies that hold these gas resources for export to the international market,” said Richard Quin, an analyst on the Middle East and North Africa at Wood Mackenzie Consultants Ltd. “The challenges of exporting LNG from Israel are quite substantial. It could easily be a decade for exports actually to happen.”

The Aphrodite field spans waters between Cyprus and Israel. Noble and other international oil companies have stayed away from Northern Cypriot waters as tensions with Turkey persist, maintaining divisions that have split the island since Turkey invaded the North in 1974. Turkey has said development projects should await resolution of Cyprus’ political status.

“The issue of Turkey remains absolutely critical, because Turkey doesn’t recognize Cyprus’ rights” to award licenses, Menas’ Gurdon said. “Turkey may adopt gunboat diplomacy and it may be difficult for Cyprus to search for and develop fields which are close to Northern Cyprus.”

The European Union, which only recognizes the Republic of Cyprus, has withheld elements of Turkey’s EU membership talks as it calls on the country to acknowledge the island nation and help resolve its ethnic divisions. Turkey has said it’s open to collaboration to exploit the region’s resources and market the fuel abroad.

“Potential cooperation may at last bring peace and stability to the region,” said Ayse Berris Ekinci, acting deputy director for energy at Turkey’s Foreign Affairs Ministry. “Turkey represents the safest, most feasible and affordable gateway for the eastern Mediterranean natural gas resources to the European markets.”

Turkey’s state oil producer Turkiye Petrolleri AO struck an agreement with Shell in November to explore off the city of Antalya, away from Cypriot waters. Turkey has also received interest from companies including ExxonMobil, BP, Chevron, Total and ConocoPhillips to explore in its east Mediterranean waters, according to the Energy Ministry.

Cyprus is due to take over the EU’s rotating presidency on July 1, potentially boosting its clout in negotiations. The island’s Aphrodite discovery is only 65 kilometers from Israel’s Leviathan field, the world’s biggest offshore gas find of 2010. The Tamar field off Israel, discovered a year earlier, is due to start output next year.

“The latest discoveries will certainly be a source of dialogue between the countries,” said Rob West, a London-based oil analyst at Sanford C. Bernstein & Co. “It’s just not clear whether the dialogue will involve disputes over resource entitlement or cooperation.”

Claims over gas fields in the region’s Levant Basin extend to Lebanon, Israel’s northern neighbor and 160 kilometers across the sea from Cyprus.

Lebanon has said some Israeli fields may stretch into its waters and has asked the United Nations to intervene to prevent a conflict over exploration areas as the country gears up for its first offshore oil and gas bidding round this year.

 
A version of this article appeared in the print edition of The Daily Star on April 20, 2012, on page 6.

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