There’s been a lot of celebrating in the Israeli energy business in recent weeks. Leviathan, Israel’s biggest natural gas field, began production a month ago and exports to Egypt and Jordan soon followed. But then came ISIS to spoil the party this week by blowing up a bit of pipeline in Egypt.
As it later emerged, the pipeline that was attacked isn’t the one carrying Israeli gas to Egypt. Nevertheless, it shows just how dangerously fragile the entire East Mediterranean natural gas business remains.
Israel and Egypt are doing a pretty good job of advancing their parts of the emerging energy hub. Israel has two reservoirs up and running, and pipelines connecting them to Egypt and Jordan. Egypt’s giant Zohr field went into production just two years after it was discovered and the government is issuing more drilling licenses.
But there have been more setbacks than successes. Cyprus is moving ahead slowly with putting its Aphrodite field online, but Turkey is determined to block the country from further developing its gas through a strategy of harassment and legal shenanigans. Turkish leader Recep Tayyip Erdogan seems determined to turn himself into the East Mediterranean gas tsar rather than being just one of many partners in a regional hub, no matter what the cost.
Lebanon, meanwhile, is a decade behind its neighbors in exploiting its potential gas and oil reserves. It only conducted its first auction of exploration rights in 2018 and exploratory drilling has been delayed. Supposedly that’s for technical reasons, but given Lebanon’s political crisis and currency controls, it’s more likely that the energy companies would rather wait to see what happens before they commit themselves.
In any case, Lebanon is in the midst of a dispute of maritime borders with Israel. By itself, that should not be a deterrent to energy development, except when you examine what’s happening behind the scenes: Hezbollah, which effectively controls the government, is quite willing to delay gas development to score political points by linking an agreement to Israeli concessions on Shebaa Farms. Lebanon’s economy is going down the drain and would benefit immensely from gas, but what’s that compared to getting back 8,000 acres of land? Hezbollah thinks it has plenty of time.
But the ultimate example of shooting-yourself-in-the foot politics must be the determined opposition in Jordan to importing gas from Israel. Jordan’s economy is teetering on the verge of collapse and badly needs a low-cost and reliable supply of energy. Israel is the preferred source because the same militants that blew up the Sinai pipeline this week repeatedly attacked the pipeline that once delivered Egyptian gas to Jordan. Egypt has resumed gas exports, but it’s easy to understand why Amman doesn’t want to put all its eggs into one basket.
The moral of all these stories isn’t just about the baleful influence of politics. It is baleful in the sense that it’s all about grandstanding and empty symbolism taken at the cost of harming the well-being of people. After all, Israel won’t collapse, nor will it be significantly strengthened, by Jordan’s importing its gas. The amounts aren’t that big and the gas benefits Jordan more than it does Israel. Slogans like “Do not trade my blood for gas” appeal to uncritical emotions, not to reality.
The more important takeaway is the risk this kind of politics poses to the entire gas regime and the economic well-being of the region's money and time.
On the money side, it’s worthwhile remembering that natural gas isn’t like oil. The cheapest and most efficient way to bring it to users is by pipeline, which means big investments in infrastructure and long-term contracts. Neither buyer nor seller can make that kind of commitment if they can’t rely on the other party. Political stability, rule of law and transparency are critical. The Middle East has precious little of any of these, which goes a long way to explaining its dire state.
Regarding time, it’s running out. People look at gas and oil as the equivalent of gold – something that is always scarce, always in demand and always valuable. But they are not. As a recent McKinsey study shows that whatever Donald Trump may think, the future of fossil fuels is dim.
Renewables and other fuels, like nuclear, are capturing a bigger and bigger share of global energy consumption and before the end of the decade will have reached the inflection point where they are cheaper than most fossil fuels. By 2035, McKinsey forecasts, renewables will account for 50% of electric power production and by 2050 three quarters of it.
The biggest loser from these trends is coal, followed by petroleum. Natural gas will continue to increase its share of energy usage until 2035, at which point it, too, will begin to lose to alternative energy and usage will begin a gentle decline. Meanwhile, a gas glut is growing that is depressing prices and giving the East Mediterranean more competition for customers.
These developments are good news in the global fight against climate change in the long run, but they are not good news for the East Mediterranean. By the time the region gets its act together – indeed if it ever gets its act together – gas could be history.
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