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Commentary

Will Lebanon welcome or curse its natural gas?

In 2006, U.S. oil company Noble Energy and Israel’s Ratio Oil Exploration received a license to explore “Leviathan,” a deep-water gas field in the Mediterranean about 130 kilometers off of Israel’s coastline. At the end of 2010, the two companies announced that Leviathan contained 450 billion cubic meters of natural gas reserves, making it the world’s largest offshore gas find of the past decade.

Leviathan and two smaller offshore gas fields not only could make Israel self-sufficient in gas needs, but could also mean a bonanza in royalties and tax revenues for the government. Some Israeli Cabinet ministers are even talking about a new regional balance of power in the Middle East. But a surge in the world’s reserves of natural gas in recent years will make it difficult for Israel to export its gas. And a new boundary dispute stemming from the discovery is now brewing with Lebanon, which says that Israel is violating its maritime rights.

Facing an Arab boycott for decades, Israel’s energy needs have always been supplied through shadowy dealings and imports. During the 1960s and 1970s, crude oil came from Iran, but this dried up when the Iranian revolution overthrew the shah. For about a decade, Israel tapped oil wells in the occupied Sinai desert until it returned the area to Egypt under the 1979 peace treaty. More recently, much of Israel’s oil needs have flowed from the states of the former Soviet Union.

The Leviathan field contains enough gas reserves to meet Israel’s energy needs for decades, with more left for export. Experts estimate the value of the reserves at $90 billion. But natural gas is a complicated resource – difficult to extract and expensive to transport. Israel would have to build a liquefied natural gas facility where ships could be loaded and dispatched to markets across the world. The project would likely cost billions and take years to complete. Whether it would be a worthwhile investment is an open question. In the past few years, large shale and other gas discoveries in the United States and elsewhere have created a glut in the market and cut the price of gas by 20 percent.

If the export question is eventually resolved, there is still the problem of Lebanon, which asserts that up to a third of Leviathan extends into its territory. In January 2011, Lebanon sent a letter to United Nations Secretary General Ban Ki-moon, urging the international body to monitor Israel’s offshore drilling and exploration. Hezbollah leader Sayyed Hassan Nasrallah went even further by declaring that the conflict with Israel was entering a new frontier: the sea. He also threatened to target any vessels heading for any port on the Israeli coastline from the north to the farthest point south. In response, Israel said it would not hesitate to use force to protect its ships.

The dispute is mostly a demarcation issue. When Israeli troops withdrew from Lebanon in 2000, the U.N.-sanctioned Blue Line became the de facto land border between the two countries. Israel unilaterally extended a line of buoys out into the sea to approximate a maritime border. But Lebanese officials say the angle Israel took from the shore gives it more territorial water than it deserves. “Shifting this line slightly above or below can mean billions of dollars for one party or the other,” says Ali Haidar, a geology professor at the American University of Beirut, who worked on the issue extensively.

Lebanon and Israel have not defined their maritime border since the withdrawal of Israeli troops in 2000, leaving a slice of contested territory. Lebanon says that up to one-third of the Leviathan gas field could be inside its maritime border. If that is the case, the two countries will eventually have to agree on a demarcation line by negotiation.

Another potential dispute is brewing between Turkey and Cyprus over the exploration for oil and gas in the Eastern Mediterranean. When Cyprus tried last year to send exploration vessels to explore for oil and gas in its territorial waters, Turkey threatened to send warships to stop the exploration vessels to safeguard the rights of Northern Cyprus.

The huge gas discoveries in the Eastern Mediterranean could exacerbate an already very tense and dangerous situation between Lebanon and Israel. Or, it could lead to a reduction of tension and mutual benefits if Israel agrees to a fair demarcation line with Lebanon, worked out and monitored by independent international experts under United Nations supervision.

Mamdouh G. Salameh is an international oil economist, a consultant to the World Bank in Washington D.C. on oil and energy and a technical expert for the United Nations Industrial Development Organization (UNIDO) in Vienna. This commentary first appeared at bitterlemons-international.org, an online newsletter.

 
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