The $4 billion opportunity off the coast of Gaza

The Israeli invasion of Gaza has raised a number of ancillary concerns, including the future of key offshore natural-gas supplies.

By MATTHEW KRIEGER
January 18, 2009 11:10
4 minute read.
british gas 88 298

british gas 88 298. (photo credit: Courtesy)

 
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In addition to the difficult long-term security concerns that are sure to arise from Operation Cast Lead, the long-overdue Israeli invasion of the Gaza Strip has also raised a number of ancillary concerns that will need to be addressed over the coming weeks, including the future of key offshore natural-gas supplies. About a year ago, The Jerusalem Post reported that Israel and UK-based BG Group, one of the world's largest purveyors of natural gas, broke off talks concerning the possible sale of the natural gas contained in the Gaza Marine gas field, an area about 36 kilometers off of the Gaza coast. In 1999, after paying the Palestinian Authority an undisclosed sum, BG, along with its partner, Consolidated Contractors Corporations, acquired the concession to survey for natural gas in 1,000 square kilometers of the Gaza Marine area. In their agreement with BG, the PA stipulated that BG must pay it at least 10 percent of the royalties from any future sales of the gas, which the PA said would be placed directly into its Palestinian Investment Fund. BG and CCC set about conducting seismic tests to determine if the field contained the valuable gas they had hoped for; in early 2000, BG confirmed that the field contained a large quantity. Over the ensuring six and a half years, BG and officials from the Finance and National Infrastructures ministries tried to reach an agreement to pump the gas into Israel. But the two sides could not agree on the price. Yet even before the talks broke off, the situation shifted dramatically in June 2007 when Hamas violently ousted Fatah from power in the Gaza Strip, claiming ownership of the gas fields off the coast and the proceeds from the sale of the gas. This posed a serious problem for both Israel, which obviously was not going to pay a portion of the money to Hamas, and to BG, which was banned by its government from negotiating with Hamas. The Post reported that had Israel and BG reached an agreement on the sale price of the gas, they would have found an alternative arrangement for the transfer of funds to ensure they did not end up funding terrorism. Today, the estimated $4 billion worth of gas off the Gazan coast is still sitting, untapped, at the bottom of the Gaza Marine gas field. Hamas has not backed away from it claim that it is the rightful owner of the gas, even saying it deserves more than the 10% of the royalties from the sale of the gas, as originally negotiated between BG and the PA. "The [Hamas] government has no problem cooperating with the British gas company, but only after modifying some points of the 1999 contract," Muhammad al-Madhoun, the director of Hamas leader Ismail Haniya's office, told the Palestinian Information Center, a Hamas Web site, soon after Hamas took control of Gaza. Looking at the current situation, the main objective of the IDF is to break down Hamas to the point where it is no longer capable of attacking Israel, or to negotiate a binding cease-fire agreement with an assurance from Hamas that it will stop its daily rocket attacks and cease smuggling weapons into Gaza through tunnels connected to Egypt. Removing Hamas from power in Gaza and reinstating Fatah will be almost impossible. However, according to newspaper reports, cabinet ministers have been told that some Hamas leaders in Gaza are desperate for a cease-fire and would be willing to settle on almost any terms stipulated by Israel. This presents the Israeli government and cease-fire negotiating team with the opportunity to snatch control of the royalties from the sales of the natural gas that Hamas is claiming as its own and restore it to the PA. Hamas has been dealt a serious blow and is so vulnerable that giving up its claim on the natural gas as part of a cease-fire agreement will not be such a significant concession. Removing any claim that Hamas has to the money from the sale of the gas would allow Israel and BG to proceed on negotiations, which were relaunched in late 2008 between BG and government representatives, without the threat hanging over them from Hamas that the money belongs to it. By returning rightful control of the proceeds from the sale of the gas to the PA, as per its agreement with BG, Israel would also score important points in helping to sway public opinion in its favor. But Israel should not just return control of the royalties, estimated at hundreds of millions of dollars, blindly to the PA. Should Israel actually succeed in purchasing the gas from BG and comply with the PA's original contract guaranteeing it 10%, Israel must stipulate in the contract with BG that the PA will only receive royalties after Israel and the PA reach a consensus on how that money will be spent. Israel should mandate from the PA that it earmark certain percentages to go toward strengthening its school, health and infrastructure systems, all of which are in desperate need of a overhaul. Israel must also set deadlines for the PA to reach certain goals; should they not be met, the royalty payments will be immediately halted. By upgrading its ability to perform normal day-to-day activities, including strengthening its security and police forces, the PA might then be able to use the money to begin taking the crucial first steps necessary to prove that it can be a potential partner for the advancement of peace in this region. mattkrieger@gmail.com Matthew Krieger is a senior account executive at Ruder Finn Israel and a former business and economics correspondent for The Jerusalem Post.

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