Thursday, 26 April 2012

Future energy conflicts in eastern Mediterranean

Egypt's gas cut may spur energy conflicts
Egypt's decision to cut off natural gas supplies to Israel threatens the two countries' historic 1979 peace treaty.

26 April, 2012

Egypt's decision to cut off natural gas supplies to Israel threatens the countries' historic 1979 peace treaty and could crank up simmering tensions over disputed offshore gas fields in the eastern Mediterranean.

On Sunday, Cairo terminated a crucial agreement, signed in June 2005 by the regime of President Hosni Mubarak, to provide Israel with 142 billion cubic feet of gas a year for two decades.

That agreement has become a symbol of growing tension between Egypt and Israel since Mubarak was driven from office Feb.11, 2011, in a pro-democracy uprising.

With Islamist parties, spearheaded by the Muslim Brotherhood, in control of Egypt's Parliament and contesting upcoming presidential elections, the interim military government of former Mubarak associates is under mounting pressure to set aside the policies of the former regime.

The Islamists have taken a sharp turn against Israel and the 1979 treaty, reflecting the deep opposition to the U.S.-brokered peace agreement by most of Egypt's 82 million people. They feel it's too favorable to the Jewish state and U.S. policy in the Middle East.

The "predictable but still surprising announcement" by Egypt's state-run Natural Gas Holding Co. "is of immediate concern to Washington, not only because it may affect the peace treaty … but also because it could increase the likelihood of vexatious disputes in the development of Eastern Mediterranean gas reserves," observed Middle East analyst Simon Henderson.

The discovery of subsea fields, primarily off Israel where reserves of up to 30 trillion cubic feet of gas have been found, had "raised Washington's expectation that regional tensions might be more amenable to resolution," Henderson noted in an analysis for Washington Institute for Near East Affairs.

But these discoveries, expected to be repeated off Cyprus and Lebanon in the coming years, have only exacerbated regional disputes.

Lebanon claims Israel's biggest field, Leviathan containing some 25 tcf of gas, encroaches on its maritime economic exclusion zone.

Turkey, a former strategic ally of Israel until they quarreled in 2010, opposes exploration off Cyprus, which has been divided between Greek and Turkish zones since Turkey invaded in 1974.

Indeed, Ankara has threatened to send in its military to prevent such exploration and it hotly opposes a deepening partnership between Israel and Cyprus to jointly export their gas to Europe via Greece, Turkey's historical enemy.

These disputes have heightened friction between longtime adversaries Israel and Lebanon, technically still at war, and between the internationally recognized Greek Cypriot government in Nicosia and Turkey, which occupies the northern one-third of the island.

It's also sharpened the rivalry between Athens and Ankara. In 2011, the Turks deployed F-16 fighter jets to what they call the Turkish Republic of Northern Cyprus, which only Ankara recognizes.

The Greek Cypriots responded by signing a military cooperation pact with Israel that's believed to allow Israel to base fighters on the island.

The stakes are getting higher. The U.S. Geological Survey reported in 2010 that 122 tcf of gas lies within the Levantine Basin encompassing Syria, Israel, Cyprus and the Gaza Strip.

By way of comparison, Algeria, a key gas supplier to Europe, has proven reserves of 159 tcf.

"So great are the suspected riches that tensions are rising across the region, echoing the scrabble for energy resources in the South China Sea," observed the Financial Times.

Egypt, and to some extent Israel as well, is portraying the gas cutoff as a purely business decision over a payments dispute, with no political purpose. Cairo claimed Israel's East Mediterranean Gas Co. hadn't paid its bills for four months.

The Israeli government sought to downplay the issue as a threat to the treaty but it's clear pressure is growing in Cairo for, at the very least, major revisions in Egypt's favor.

Mubarak's enemies have long claimed he sold the gas to Israel at concessionary prices, with his family and associates raking in millions of dollars in kickbacks.

The gas deal's unpopularity has been demonstrated by 14 bomb attacks on the pipeline running from the Nile Delta to Israel -- and Jordan -- across the increasingly lawless Sinai Peninsula over the last year.

Cairo's failure to contain growing turmoil in Sinai, in which Egypt is allowed to deploy only a few hundred troops under the 1979 treaty to ensure Israel's security, is becoming an increasingly tendentious issue.

Security there could become the real game-changer.

Foreign firms vie for Libya oil industry revival

26 April, 2012

Libya's first post-war oil and gas exhibition attracted dozens of foreign companies to Tripoli this week, avid to win new business and hopeful that questions about contracts and security will ultimately be resolved in their favour.

After a virtual shutdown last year, Libyan oil output has climbed to near pre-war levels of 1.6 million barrels per day since the conflict that ousted Muammar Gaddafi ended, but concerns remain over security and how the North African country's new rulers will treat foreign companies.

Libya needs foreign investment and expertise to increase oil and gas production. But uncertainty about existing contracts and about the terms of any new deals will persist until a clearer landscape emerges after June elections for a national assembly.

"(We need) a stable environment ... security. We also need answers to questions about what will be the role of IOCs (international oil companies) in the future," Jean-Daniel Blasco, vice president North Africa for exploration and production at France's Total, told a conference that ran alongside the exhibition.

"What will be the relationship between the ministry and National Oil Corporation? When will the next exploration rounds be issued? ... will EPSA 4 remain the model for future exploration? These are the main questions," he said, referring to Libya's last exploration and production sharing agreement programme.

The interim government has set up a committee to look into corruption allegations in the Gaddafi regime. Its determinations could lead to the reworking of lucrative deals in the OPEC member, which has Africa's largest crude oil reserves.

Meanwhile, a shake-up of the sector has given more power to the oil ministry and carved up the responsibilities of the state's National Oil Corporation (NOC).

"We are cooperating with the committee, we gave them all the information we have," Oil Minister Abdulrahman Ben Yazza told Reuters. "We hope they will finish their work soon and give out all the information needed."

When asked about the next potential offering of blocks or contracts, he said: "We are studying this matter and we will (talk) about this soon."


The government has reiterated there will be no new deals until after the polls and that it is too early to say what future contracts would look like. In the meantime, businesses are ensuring they make themselves well known on the ground.

Companies from around the world exhibited their expertise in exploration, production, refining and services at the four-day Oil & Gas Libya 2012, which runs until Thursday. Among them were Total, Repsol, Wintershall and Statoil, already among the biggest firms already operating in Libya.

Repsol expects to reach its pre-war Libyan output of 340,000 bpd by summer. It hopes for a rise to up to 380,000 bpd in coming years, Nemesio Fernadez-Cuesta, upstream director, said.

"A lot of Libyan people know they need the international oil companies for financing, added technology, and we don't foresee any major problems," he told Reuters. "This process (regime change) can generate some difficulties, but we think we will be able to deal with them."

Unlike in Iraq, the scale of the damage in Libya was limited, although oil officials have cited the need for maintenance and upgrades after fields were hastily shut down. That means potential business for the numerous European and Middle Eastern engineers, consultants and others at the exhibition.

"We hope to re-establish a lot of contacts with Libyan clients, existing and new," Erik Huber, of Dutch engineering and environmental consultancy Royal Haskoning, said. "We trust that there will be a lot of investment in the Libyan oil industry."

But behind the public statements of optimism, worries are evident. Protesters in Benghazi closed off the office of NOC subsidiary the Arabian Gulf Oil Co on Monday and Tuesday, and their demands included the ouster of Gaddafi-era officials.

"The problem is that some people want a clean cut from before (the Gaddafi-era), but some are needed for their expertise. Getting through change is key," a European oil executive said. "We just have to be patient for now."

Security also remains one of the biggest concerns of foreign companies returning to Libya. The numbers of expatriate workers still have yet to return to pre-war levels.

Officials speak of plans to train thousands of former rebel fighters under an umbrella oil installation guard. Groups of fighters have stood guard in the absence of an effective army.

"One of my biggest concerns is that fighting, such as tribal clashes, can easily start," a Libyan worker at a European oil and gas company said. "The situation is still unstable."

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