Gaza closer to Israeli gas imports

The decade-old aspiration for gas offshore in the eastern Mediterranean to supply the Palestinian Gaza Strip could become reality in 2023, NGW understands.

In early February, a major obstacle in its path – the €90 ($107)mn cost – was removed by the conditional promise of third-party financing for either side of the 44-km cross-border pipeline.

The EU will provide grant financing to cover the cost of construction of the pipeline in Gaza and is in talks with the Palestinian Authority, Israel and Qatar, another backer, on the project. Among the conditions is the signature of a gas sales and purchase agreement (GSPA), which is still pending.

Chevron, the US major that has operated Leviathan and the Tamar field off Israel since taking over Noble in an all-share deal last autumn, told NGW April 5 it was “pleased to partner with the state of Israel, and we look forward to supporting the country's strategy to develop its energy resources for the benefit of the country and the region.” It declined to comment as a matter of policy on the commercial side, such as the status of negotiations on any gas supply agreement.

Not all the output from the Leviathan field has been pre-sold although the partners have signed long-term contracts with Egypt, Jordan and Israeli companies.

Gas for Gaza

The pipeline is a key element of the Gas for Gaza (G4G) project, which the Office of the Quartet (OQ) has been working on since 2014 with both sides. G4G has also been included in the list of flagship initiatives in the EC's proposed Economic and Investment Plan for the Southern Neighbourhood, put forward February 9.

The OQ reports to its members: the UN, the EU, the US and Russia. It was set up to support, among other things, Palestinian economic development en route to a two-state solution.

The OQ’s director of energy Ariel Ezrahi told NGW in an interview that the agreement on funding the pipeline marked a major step forward in terms of the economic development and the environmental health of Gaza.

Political agreement on a pipeline was reached some years ago and there is not likely to be any disagreement between the two sides over the operation of the line, he said. “Everyone will win from the pipeline and so the decision to contribute euros was a no-brainer. This pipeline will provide a sustainable and long-term solution,” he said.

He does not envisage upstream problems either. The Leviathan field has been operated by the US major Chevron since it bought fellow US producer Noble Energy last autumn. The US has been a strong supporter of the pipeline project since the outset, he said.

Ezrahi, formerly a London-based lawyer, said the shift from diesel to natural gas as a transitional fuel would greatly cut the carbon intensity of the electricity generation. The project should cut Palestinian emissions by 6%. And gas is about a third of the cost of diesel, per MWh generated.

The availability of reliable and cost-efficient natural gas in Gaza will allow the Gaza Power Plant, which had been built originally by the US energy company Enron (now GPGC) as a combined-cycle gas turbine but which now runs on diesel, to be converted back to gas operations. This will also mean less dependence on electricity imports.

With the cost of the pipeline covered, the gas buyers in the Gaza Strip will only be paying for the commodity, Ezrahi said. “The capex of the pipeline which is normally factored into GSPAs would otherwise be a very significant burden for the customers,” he said.

It will be a standard, commercial GSPA and the Palestinians will be financially responsible for their side of the deal. The West Bank will also need gas for a planned 450-MW power generation but that will be a separate project in Jenin.

The OQ says it will be critical to increase electricity collection rates in parallel with increased power supply in order to ensure cost recovery.

The Netherlands has provided financial and political support and work on the detailed design of the pipeline is now in progress: it was the Dutch gas transmission system operator Gasunie that did the original design for the Israeli gas grid and it also did the initial work on the Palestinian side. The detailed design work for that section is now in the hands of EPCM, a South African company.

Local benefits

The benefits to the 2mn residents of the Gaza Strip will be dramatic once the pipeline is fully operational: the economy is struggling and the diesel that powers the electricity generation is both expensive and polluting. There are a lot of privately-owned diesel generators as well, pumping out dangerous pollution, Ezrahi said.

Renewable energy projects will be part of the energy mix in Gaza – there are also solar photovoltaic projects in the pipeline – but for the foreseeable future the bulk of electricity will be generated from gas, as a transitional fuel, until cleaner energy solutions are available, he said.

Domestic electricity supply round the clock is only a part of the scheme. The region could comfortably absorb 1bn m³/yr, including demand from heavy industry, water desalination projects and transport. It would therefore be completely revolutionary for the territory, he said.

Overall, G4G can add over $1bn to the territory’s GDP by 2033 – a decade perhaps after first gas – generating a saving of $150mn/yr from switching from diesel to gas.

Palestine and Israel have already signed an agreement on electricity that also provides an opportunity to resolve the longstanding Palestinian debt to the Israel Electric Company (IEC) and will pave the way for the establishment of an independent new Palestinian electricity market.

Broader perspectives

The plan is eventually to bring gas ashore from Gaza Marine, which was where the former UK company BG found gas to supply Palestinian and regional Arab markets. The offshore Gaza Marine gas field could bring Palestinians up to $2.5bn over its 25-year lifespan and so support the development of their energy sector.

Further, the OQ’s website says the Eastern Mediterranean Gas Forum (EMGF), set up last year in September in Cairo, is “an encouraging step which only serves to emphasise the important role that the Palestinian natural gas reserves play in the regional context.”

The EMGF’s six members are Israel, Egypt, Greece, Cyprus, Italy and Jordan but the Palestinian Authority also has representation. France has also applied to join, and the EU and US are seeking observer status, NGW reported last year.

EMGF aims to develop regional gas supply and bring “regional co-operation with Arab and European countries, the first of its kind in history," Israel's energy minister Yuval Steinitz said.

Absent from EMGF is Turkey which has strained its international ties by repeatedly drilling in waters belonging to Cyprus.