Shell pulls out of Gaza, as Eastern Med tensions rise

13 March 2018, Week 10, Issue 666

Royal Dutch Shell in early March confirmed that it would withdraw from the Palestinian Territories’ only discovered gas field. The Gaza Marine field was discovered by the former BG Group at the turn of the century but has remained undeveloped as a result of the acute political sensitivities involved.

The perils of doing business in the contested Eastern Mediterranean waters have been particularly visible in recent weeks – with tensions heightened by Lebanese and Cypriot licensing activity.

BG Group, which merged with Shell last year, signed a 25-year exploration and development contract with the Palestinian Authority (PA) in 1999 for the Gaza Marine block, and the following year discovered the field – located around 36 km off the coast of the Gaza Strip.

At the time, relations between Ramallah and Tel Aviv were going through a relatively-harmonious phase following the Oslo Accords earlier that decade while Israel was suffering a shortage of gas. A plan was proposed envisaging export of a portion of the gas to Israel in return for the transfer of much-needed revenues to the PA.

However, the stars swiftly moved out of alignment with the outbreak of the Second Intifada in 2000, Israel elected a hardline government in Tel Aviv in 2001 and a now-defunct gas import deal was signed with Egypt four years later. In 2006, the militant Hamas group came to power in the Gaza Strip, and soon after, BG announced the termination of negotiations with Israel over “insurmountable disagreements”.

Current relations – under hawkish Prime Minister Benjamin Netanyahu, goaded by US President Trump – are at renewed low.

Gaza Marine contains an estimated 1 tcf (28 bcm) of gas – and the prospective resources were subsequently dwarfed by discovery of Israel’s own Tamar and Leviathan fields around the turn of the decade, containing combined reserves of more than 32 tcf (906 bcm).

Meanwhile, Shell has been shedding non-core assets across the world in the wake of the oil price of 2014 slump and the BG merger – with the Gaza holding an obvious candidate – and the super-major’s decision to withdraw was announced by the PA cabinet on March 5.

The company later confirmed the intention to relinquish the 55% interest – which leaves the Palestine Investment Fund (PIF), the sovereign wealth fund, as the sole shareholder in the licence.

PA officials said that a process had been initiated to find a new foreign investor – and reports in January suggested that some interest had already been shown by a European firm in the aftermath of a reconciliation deal between Hamas and the rival Fatah movement, which controls the PA.

However, the risks would be significant while supply options are now limited following far-larger finds elsewhere in the region. When development was first mooted, energy-poor Jordan was regarded as a potential customer but the kingdom signed a major gas supply deal with the Leviathan field’s operators in late 2016 – which was confirmed by the parties in early March.

Prospective Gaza investors will derive little reassurance from recent events elsewhere in the contentious Eastern Med waters – where major gas discoveries have exacerbated longstanding tensions.

A war of words erupted in February when Beirut formally awarded licences to the same three-strong consortium for two blocks auctioned during the country’s maiden offshore auction last year – one of which lies in an 860-square-km triangle disputed with Israel.

French operator Total had attempted to placate Tel Aviv with a statement that drilling in block 9 would remain well away from the contested zone but this reassurance was offset by restatement by Lebanese Energy Minister Cesar Abi Khalil of his country’s rights over the entirety of the contract area.

Shia militant group Hezbollah then fanned the flames by urging the government to stand firm on the issue. As both parties stepped up war-like rhetoric, Washington attempted to calm tensions – with Secretary of State and former oilman Rex Tillerson visiting Beirut in mid-February and his Assistant Secretary of State for Near East Affairs David Satterfield shuttling between the Israeli and Lebanese capitals during the month to mediate. Total and partners – Italy’s ENI and Russia’s Novatek – plan to spud a first well in 2019.

Meanwhile, ENI again found itself drawn into regional geopolitics in February – as exploration activity sanctioned by the Greek Cypriot government in the island’s offshore Exclusive Economic Zone (EEZ) drew Turkish ire.

Following a potentially-major discovery in block 6 in the area’s south west in early February, the Italian giant planned to move the Saipem 2000 drillship to the Cuttlefish prospect in block 3 – also operated by ENI – in the zone’s east but had the vessel twice blocked by the Turkish military later in the month.

Turkey’s Energy Minister Berak Albayrak was quoted in the local media as declaring that Ankara would not permit “unilateral” exploitation of the island’s offshore territory. Neither of the two quarrels had moved any closer to resolution by mid-March.

Edited by

Ian Simm

Editor

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