The $4 Billion Opportunity Off the Coast of Gaza

The Jerusalem Post, January 30, 2009 - In addition to the difficult long-term security concerns that are sure to arise from Operation Cast Lead, the long-overdue Israeli invasion of the Gaza Strip has also raised a number of ancillary concerns that will need to be addressed over the coming weeks, including the future of key offshore natural-gas supplies.

About a year ago, The Jerusalem Post reported that Israel and UK-based BG Group, one of the world's largest purveyors of natural gas, broke off talks concerning the possible sale of the natural gas contained in the Gaza Marine gas field, an area about 36 kilometers off of the Gaza coast.

In 1999, after paying the Palestinian Authority an undisclosed sum, BG, along with its partner, Consolidated Contractors Corporations, acquired the concession to survey for natural gas in 1,000 square kilometers of the Gaza Marine area.

In their agreement with BG, the PA stipulated that BG must pay it at least 10 percent of the royalties from any future sales of the gas, which the PA said would be placed directly into its Palestinian Investment Fund.

BG and CCC set about conducting seismic tests to determine if the field contained the valuable gas they had hoped for; in early 2000, BG confirmed that the field contained a large quantity.

Over the ensuring six and a half years, BG and officials from the Finance and National Infrastructures ministries tried to reach an agreement to pump the gas into Israel. But the two sides could not agree on the price.

Yet even before the talks broke off, the situation shifted dramatically in June 2007 when Hamas violently ousted Fatah from power in the Gaza Strip, claiming ownership of the gas fields off the coast and the proceeds from the sale of the gas.

This posed a serious problem for both Israel, which obviously was not going to pay a portion of the money to Hamas, and to BG, which was banned by its government from negotiating with Hamas. The Post reported that had Israel and BG reached an agreement on the sale price of the gas, they would have found an alternative arrangement for the transfer of funds to ensure they did not end up funding terrorism.

Today, the estimated $4 billion worth of gas off the Gazan coast is still sitting, untapped, at the bottom of the Gaza Marine gas field. Hamas has not backed away from it claim that it is the rightful owner of the gas, even saying it deserves more than the 10% of the royalties from the sale of the gas, as originally negotiated between BG and the PA....

See also:

Deadly Gas in Gaza (Palestine Chronicle, January 22, 2009)

War and Natural Gas: Israel's Invasion and Gaza's Offshore Oil Fields (Centre for Research on Globalization, January 8, 2009)

Natural Gas Alternative for the Middle East (Green Prophet blog, July 27, 2008)

Does the Prospective Purchase of Natural Gas from Gaza's Waters Threaten Israel's Security? (Jerusalem Center for Public Affairs, Israeli security perspective) and an article about this piece in Haaretz (October 2007)

PA, BG in Gas Processing Deal Without Israel (2005)

And for context, the recent discovery in Haifa:

Huge Gas Reserves Discovered Off the Coast of Haifa (Jerusalem Post, January 18, 2009 )

Israeli Gas Find [Haifa] Tips Energy Balance (Business Week, January 19, 2009)