Gaza conflict casts shadow over energy projects

9 October 2023

Analysis
Wil Crisp
Oil & gas reporter

Israel’s declaration of war against Hamas has increased uncertainty over planned oil and gas projects in the region and could lead to long delays and even the cancellation of some significant projects.

The projects at risk include oil and gas projects off the coast of Gaza, in Cyprus, Egypt and Lebanon.

One project likely to see severe delays or cancellation is the planned development of the Gaza Marine gas field.

In June, the Israeli government issued preliminary approval to develop the Gaza Marine project, 30 kilometres off the coast of Gaza, the Palestinian enclave controlled by Hamas.

Talks to push forward the development of the Gaza Marine gas field have been mediated by Egypt and attended by officials from both the Palestinian Authority and Israel.

The Gaza Marine field is estimated to hold more than 1 trillion cubic feet of natural gas.

The Gaza Marine field was discovered at the end of the 1990s and development has already been delayed several times due to conflict between Israel and Palestine.

Although the field is not large compared to others discovered in the Mediterranean, it is expected to generate about $7bn in revenues if developed.

The field is expected to produce 1.5 billion cubic metres of gas a year over 20 years.

Lebanese oil and gas

There is also potential for the conflict between Israel and Hamas to disrupt offshore oil and gas projects in Lebanese waters near the Israeli border.

Israel conducted artillery strikes across its UN-patrolled border with Lebanon after Hezbollah launched guided missiles and artillery shells in the contested Shebaa Farms border area on 8 October.

The rapid deterioration in relations between the two countries could awaken the conflict over shared maritime boundaries that was seemingly resolved last year, allowing Lebanon to start exploratory drilling for oil in formerly disputed territories that lie close to Israeli waters.

In August, a drilling rig arrived in Lebanon’s Block 9 to begin oil and gas exploration.

The exploration is being conducted in Lebanon’s Block 9 by a consortium led by France’s TotalEnergies. It includes the Italian oil company Eni and state-owned QatarEnergy.

Qatar Energy replaced Russian company Novatek, which withdrew from the Lebanese market in September.

The drilling became possible after a deal in 2022 that delineated the Lebanon-Israel maritime border for the first time, despite Beirut still considering itself at war with its neighbour and laws barring contact with Israeli officials.

Block 9 lies mostly in Lebanese waters, but a segment lies south of the newly delineated border.

As part of the deal, signed on 27 October 2022, a mechanism for the consortium to exploit possible discoveries that extend south from Block 9 was established, setting up a royalties system for Israel while the exploitation would be on behalf of Lebanon.

Experts have argued that the absence of specific criteria for profit distribution is one of the biggest loopholes in the deal in the event of cross-border deposits being identified.

Aphrodite gas field

The deterioration in relations between Israel and its Arab neighbours has created increased uncertainty over plans for a subsea pipeline connecting the Aphrodite natural gas field, located off the coast of Cyprus, to Egypt.

In May this year, partners in the Aphrodite natural gas field, which include Israel’s NewMed Energy, announced they were seeking approval from the Cypriot government to build the subsea pipeline that would link to an existing processing and production facility in Egypt.

At the time, Israel’s NewMed Energy, formerly Delek Drilling (part of Yitzhak Tshuva’s Delek Group), which owns a 30 per cent stake in the Aphrodite field, said it had presented the Cypriot government with an updated plan for the development of the reservoir, including natural gas processing and production.

The other partners in the Aphrodite gas field, which holds an estimated 124 billion cubic metres of gas, are US energy giant Chevron and Shell, each owning a 35 per cent share.

The Aphrodite gas field was discovered by the A-1 well in September 2011 and is estimated to hold 4.5 trillion cubic feet of recoverable reserves.

Israel claims that part of the field lies in Israeli waters. Although talks have made headway over recent years, the dispute has not yet been completely settled with a signed agreement.

A formal resolution to the border dispute with Israel will be needed to gain significant ground on the project to develop the Aphrodite field.

If the progress towards the resolution is overturned in the wake of the latest round of conflict between Hamas and Israel, then that would be a major setback to Cyprus’ plans to export gas to Europe.

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Wil Crisp
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