Israel’s East Mediterranean Pipeline Dreams Fading as Egypt, Cyprus Go It Alone

Without the pipeline, Israel’s export prospects look dim

The Leviathan natural gas field in the Mediterranean Sea, located 81 miles west of Haifa, January 31, 2019.
Marc Israel Sellem/AFP

While Israeli leaders have turned their attention to campaigning for the April 9 election, Cyprus and Egypt have been working behind the country’s back to advance plans for an undersea gas pipeline.

Cyprus and Egypt in September signed an agreement for a subsea pipeline to carry natural gas from Cyprus’ Aphrodite field to Egypt. Two weeks ago, the Cypriot cabinet took another step forward by approving the September deal.

In doing so, Cyprus ignored Israeli claims to a portion of Aphrodite, which lies in Israeli economic waters. The Cyprus-Egypt pipeline also weakens the economic justification for the projected East Mediterranean pipeline, a $7 billion undertaking that would deliver Israeli and Cypriot natural gas directly to Europe via Greece.

>>Read more: With exports to Jordan and Egypt, Israel becoming key player in Mideast gas market | Analysis

Egypt has done little to hide its ambitions of getting the Cypriot pipeline on track before the East Med pipeline is built, turning Egypt into an energy hub that would distribute the region’s natural gas, including Israel’s, to customers in Europe and the Middle East.

In an interview with the Cypriot news agency CNA on February 11, Egyptian energy and mineral resources minister Tarek el-Molla said the two countries were working to accelerate approvals and that a host of multinational energy companies and banks were ready to finance it.

“We perceive Europe as our primary targeted market. We have taken many steps towards this goal. We signed a memorandum of understanding with the European Union on a strategic partnership in energy in April 2018; including EU’s support to Egypt to turn into a regional energy hub,” Molla said.

As for the proposed gas pipeline among Cyprus, Greece, Israel and Italy, Molla said a feasibility study for the project would take up to two years, “which in itself is a luxury the region can’t afford any more.”

Egypt, he added, was the lowest-cost option for exporting the region’s gas. While no pipeline exists to re-export gas from Egypt, the country has two idled gas liquefaction plants that would enable it to start re-exports with little or no infrastructure investment.

Molla also said that given Israel’s delicate geopolitical situation — a reference to Lebanon, Syria, Iran and the Palestinians — Egypt offers Israel the most politically stable option for exporting its gas.

The leaders of Cyprus, Greece and Israel agreed at a summit in Be’er Sheva in December to proceed with the East Med pipeline. The EU has designated it a Project of Common Interest and has tasked the European Commission to evaluate it. Israeli sources say a feasibility study should take a year to complete.

Already a long shot because of the expense and the engineering challenges involved, East Med is becoming something of an Israeli pipe dream. Without it, Israel will not be able to export large quantities of natural gas and attract additional exploration and drilling.

Even as Cyprus moves ahead on a pipeline plan with Egypt, it has yet to settle a claim of Israel’s regarding Aphrodite, which lies at the edge of Cyprus’ economic waters. One tip of the field stretches across the border into Israel’s maritime zone and its Yishai field.

At stake is as much as 10 billion cubic meters of gas, which is less than 10% of Aphrodite’s total reserves and a fraction of the gas already discovered in Israel. But the gas is worth close to $1.5 billion, according to one recent Israeli estimate.

During a visit to Cyprus in May, Energy Minister Yuval Steinitz expressed hope that the dispute could be settled within six months and if not, that it would go to international arbitration. Nine months later, the Energy Ministry says it remains unresolved.

According to the minutes of a meeting of Energy Ministry officials obtained by TheMarker, Cyprus’ view is that the Yishai share of the reservoir is so small as to be not economically viable and is therefore under no obligation to share rights.

Israel doesn’t dispute that the Yishai share isn’t viable but says that Aphrodite’s partners — Royal Dutch Shell, Texas-based Noble Energy and Israel’s Delek Drilling — should assign it part of their profits. Even if they agree, the two countries are at odds over how to calculate the Yishai partners’ share.

One option Israel has in the dispute is to incorporate penalties into its proposed Marine Areas Law on those who violate its economic waters. The legislation right now doesn’t call for penalties because officials say other laws already do so.

But the Movement for Quality Government in July urged the government to reconsider, saying it would cost the public tax revenues and enrich the Aphrodite partners by giving them full rights to the reservoir. The Justice Ministry says the dispute should be resolved through international law, not by Israeli legislation.