Israel balancing diplomacy, security in gas deal

JERUSALEM, Jan. 7 (JTA) — Israeli leaders are facing a decision on where to buy natural gas, a move that may have serious repercussions for its strategic position in the region.

After years of fruitlessly chasing Egypt as a supplier of natural gas, Israel turned the tables last year when it found enough natural gas off its own shores to supply the country’s needs for at least 15 years.

Suddenly, Egypt, which has resisted significant business ties with Israel despite a two-decade-old peace treaty, accused Israel of turning its back on normalization with the Arab world.

As Israeli companies wrote radio jingles urging the public to support “blue-and-white” gas — a reference to the colors of the Israeli flag — Egypt belatedly warmed to the vision of a “peace pipeline” to provide its gas to Israel, Turkey, Lebanon, Syria and the Palestinian Authority.

Also in the running for a gas contract is the Palestinian Authority, which announced a major find last year off the shores of the Gaza Strip.

The main customer is the Israel Electric Company, which uses some 2.5 billion cubic meters of natural gas annually at a cost of $200 million to $250 million.

Officially, the decision will be up to Israel Electric’s board of directors. However, because of its far-reaching economic and political consequences, Prime Minister Ehud Barak also will have input into the issue before Israel’s Feb. 6 elections.

The three main bidders are Israel’s Thetis Sea partnership; EMG, an Israeli-Egyptian consortium; and British Gas, which received a franchise from the Palestinian Authority to produce gas from the Gaza find.

The basic trade-off is this: while Israeli gas likely would be more expensive than Arab gas — and there is less of it — the supply is more secure and wouldn’t leave Israel dependent on a potential antagonist for such a crucial commodity.

Albert Papouchado, president of the Israel-Egypt Chamber of Commerce, told JTA last week that he recommends striking a deal with Egypt.

Under such an arrangement, an underwater pipeline would run from El Arish in Egypt’s Sinai Desert, off the Israeli shore and through the Mediterranean Sea all the way to Turkey.

“If we have an agreement, this will be a very important step to push forward normalization,” Papouchado said.

Nimrod Novik, vice president of the Merhav Group — the Israeli partner in the Israeli-Egyptian EMG consortium — believes the deal is too good to reject. Nor will it put Israel at Egypt’s mercy, he said.

On the contrary, “such a deal will make Egypt dependent on a regular income from a pipe that will serve both Israel and Turkey,” Novik said.

But Israeli gas producers warn that Israel cannot rely on an Arab state for energy.

As proof, skeptics cite Egypt’s behavior since the violent Palestinian uprising against Israel began in late September. Though momentum in Israel had begun to swing back toward a deal with Egypt — or some combination of Israeli and Arab gas — Egypt pulled its ambassador from Tel Aviv and threatened to build a pipeline that circumvented Israel.

While the proceeds Egypt would reap from a deal are “not insubstantial,” they would not outweigh the potential political capital Egypt would earn in the Arab world by using the gas supply as a weapon against Israel, Shmuel Even, former head of the economic research division in Israeli military intelligence, wrote recently in the Ha’aretz newspaper.

The paper identifies Even as a consultant to Delek Drills, which has holdings in Israel’s Thetis Sea exploration group.

Moreover, according to Avinoam Finkelman, president of Delek Drills, “the import of Egyptian gas to Israel will mean a death sentence for gas exploration in Israel.”

As for the normalization argument, Finkelman pointed out that Israel already has bought tens of billions of dollars in oil from Egypt.

“I do not see that this contribution of ours to the Egyptian economy has warmed up the peace between Israel and Egypt,” he said.

After years of disappointing finds, in the past year Israeli exploration firms detected some 45 billion cubic meters of gas reserves off the shore of Ashkelon. Israel’s anticipated natural gas consumption during the next 15 years does not exceed 37.5 billion cubic meters.

Almost immediately, Egypt’s attitude toward a gas deal with Israel changed, and Egyptian officials seemed to forget that they had been stonewalling their Israeli counterparts for six years.

Last May, when Israeli entrepreneurs discovered yet another reservoir of natural gas near Ashkelon, spokesmen for the Israeli firms announced that there was no need for any imports.

As Gideon Tadmor, director general of Avner Oil Exploration, put it, “We are blessed with large quantities of commercial gas that can meet the needs of the Israeli market for many years go come.”

But Dedi Golan, spokesman for the Israel Electric Company, told JTA last week that the company would make its final decision based on two considerations — cost and guaranteed supply.

Papouchado, a stubborn lobbyist for the development of commercial ties with Egypt, translated the code. “Guaranteed supply” means local sources, he said, while “cost” means Egyptian sources.

Papouchado said Israel probably will decide to buy from both sources, with the only question being how much to buy from each.

Another option is Palestinian gas, discovered recently off the shores of Gaza. However, prospects for such a deal have dimmed, given the last three months of Israeli-Palestinian conflict.