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Israel Pushing EU to Invest in Pipeline Through Cyprus

Source: Bloomberg 12/10/2014, Location: Middle East

Israel is lobbying the European Union to decide next week on investing in a pipeline from its Mediterranean gas fields to Cyprus that would provide a new alternative to Russian energy supplies.

Silvan Shalom, Israel’s regional development minister, has promoted the project to EU energy ministers, as well as with Greece, Cyprus and Italy. The energy ministers, who meet next week in Brussels, could issue a memorandum of understanding backing the project, which Israel also sees as a way to improve ties with Europe.

“It’s good for them, it’s good for us,” Shalom said in a Dec. 1 interview. “They will have a reliable source, we will have good relations with them. We can provide the gas, and the best way they can have it and I believe at the cheapest price.”

Israel’s 2009 and 2010 discoveries of two gas fields off its Mediterranean coast have led to energy agreements with Jordan, a preliminary deal with Egypt and hopes that the estimated 29 trillion cubic feet of gas may help improve relations with Arab states, Turkey and Europe.

Shalom estimated that the pipeline would cost $6 billion -- analysts put it closer to $10 billion -- and said European backing for the deal, which involves Houston-based Noble Energy Inc. (NBL) and Netanya, Israel-based Delek Group Ltd. (DLEKG), was essential.

“If it’s not going to be financed by the European Union, it’s not going to work,” he said.

Shalom spoke in Washington as Russia scrapped a proposed $45 billion Black Sea gas pipeline to Europe on Dec. 1.

Israel’s Chances
The proximity of gas-rich Russia to Europe and increasing supplies from the U.S., Canada and East Africa weigh against Israel’s chances of winning EU backing for its pipeline plan, according to Edward Chow, a senior fellow at the Center for Strategic and International Studies, a Washington policy group.

The pipeline route is “by far the most expensive option” Israel has to transport the gas, Chow said. It would be moving it “a long distance in a pretty competitive market,” Chow said, noting other existing pipelines.

It would be cheaper to send the gas through Egypt, which has facilities to process the gas for shipping, said Chow. While a preliminary agreement signed this year by Noble, Delek and Egypt awaits final approval from the government in Cairo, “we are not sure it will be authorized,” Shalom said.

Political Risks
Risk is important in any decision, Shalom said. “I have to look at it not only the economic way, but also the geopolitics,” he said.

Egypt exported gas to Israel until 2012 through a pipeline across the Sinai until attacks by militants led Egypt to cancel the contract. Shalom said a priority for Israel would be to make sure its gas exports “flow without any intervention or interference, and it will go to as many countries as we can have.”

Israel, Cyprus, Greece and Italy have written the EU energy ministers urging their support for the proposed pipeline from the Mediterranean fields to Cyprus, where the gas would be liquified, then shipped by tanker. Gas from Greek fields and even Lebanese fields could be connected, Shalom said. “Why not?” he said.

The U.S.-EU Energy Council issued a joint statement in Brussels this week recognizing “the growing potential of the new gas resources in the Black Sea, North Africa, and Eastern Mediterranean for the energy security of the EU and the wider region.”

EU Economy
The EU economy poses another obstacle, though, said Tim Boersma, acting director of the Energy Security Initiative at theBrookings Institution, a Washington policy group. “The EU has no precedent for constructing a pipeline,” Boersma said in an e-mail, and there’s meager funding for infrastructure. “I would be cautious to think that the EU is going to finance this pipeline,” Boersma said.

Shalom said Israel wants a decision on the pipeline made quickly so that it will be able to supply its own market, which will have converted to gas by January 2018.

“We have a few options, that is one of them and we would like to try to find out if this option is real or not,” Shalom said. “We would like to do it now, not to have some illusions that the option can be implemented and finally there is no chance to implement it.”

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