Forget John Kerry's Shuttle Diplomacy; Israel And Palestinians Sign Historic Energy Deal

Amid what some are calling U.S. Secretary of State John Kerry’s “failed shuttle diplomacy” between Israelis and Palestinians, a gas export agreement between a Palestinian power firm and the drilling partners of Israel’s largest offshore gas reserve was signed on Sunday.

The Palestine Power Generation Co., along with the Delek Group Ltd. (TLV:DLEKG) and Ratio Oil Exploration (TLV:RATI.L), both of Israel, and Houston-based Noble Energy (NYSE:NBL), all stakeholders in Israel’s offshore natural gas field, signed a $1.2 billion pact, the first such export deal for the energy reserves found in the Eastern Mediterranean.

In 2010, Noble discovered a huge gas reserve 80 miles off Israel’s coast known as the Leviathan field -- the largest such natural gas find of the past 10 years.

The gas field is part of the Levant Basin, a stretch of sea that extends from the coasts of Israel, Lebanon and Syria in the east to Cyprus in the west. The basin has a mean undiscovered oil resource of 1.7 billion barrels of oil and an undiscovered natural gas resource of 122 trillion cubic feet.

PPGC plans to buy approximately 4.75 billion cubic meters (168 billion cubic feet) of gas over 20 years, to fuel a future power plant in Jenin in the northern West Bank, as reported by the Jerusalem Post.

The PPGC’s main investor is the Palestine Electric Co., which is a publicly owned company traded on the Palestinian Securities Exchange. The company is made up of both public and private shareholders.

Currently, the Palestinian Authority, which governs most of the Palestinian population of the West Bank, accounts for around 8 percent of Israel’s total electricity demand – and the Palestinian portion of that demand is increasing by approximately 6 percent annually, reported the Jerusalem Post.

Not only will the construction of the $300 million power plant help spur the local economy in Jenin, the new energy resource will help continue the recent economic growth in the West Bank.

“This is a dual historic event: the first contract to supply gas from the Leviathan reservoir, which is Israel’s largest natural gas reservoir, and the first contract to export gas for the sale of natural gas to a company in the Palestinian Authority,” said Gideon Tadmor, chairman of Delek Drilling and CEO of Avner Oil Exploration (TLV:AVNR.L). “The Leviathan project is expected to have a significant positive impact on the Israeli economy and on its geopolitical positioning.”

Israel is facing a major policy decision on gas exports. Prime Minister Benjamin Netanyahu's government had been trying to decide how much natural gas it should export. Initially the Cabinet decided to export 53 percent of the country’s gas production and retain the remainder for domestic uses -- but opposition groups have been fighting to keep more natural gas at home, arguing that lower exports would translate into lower energy costs locally.

Facing pressure from the public, the Cabinet reduced the natural gas exports’ target to 40 percent, but the opposition was still not satisfied and petitioned the Israeli Supreme Court in June to decide whether the Cabinet or the Knesset (parliament) should be able to determine export policy. With Israel's historically heavy reliance on imported oil and gas, it has had some of the highest energy costs in the world, and reducing reliance on imported hydrocarbons is vital to the country's revised energy security policy.

Currently, Israel is weighing its options on how best to export its gas. One possibility is piping natural gas to a proposed liquefied natural gas facility in Cyprus, but this would take years to build. Another option would be to pipe the gas to Turkey, which seems to be the more efficient and less costly option. But shaky relations between Ankara and Jerusalem make this scenario rather doubtful, at least in the near term.

An even unlikelier option for Israel to consider is a floating liquefied natural gas facility, but some experts believe the costs and security risks of such an endeavor would be prohibitive.

Regardless of the how, when and where -- an energy deal between Israel and Palestinian entities could go a long way toward easing relations between these two long-warring parties.

During the start of the peace negotiations in July, Oded Eran, a senior research associate at the Institute for National Security Studies, told the International Business Times that the energy discoveries in the Mediterranean could provide a very important “bridge and a very important contributor to the Palestinian economy,” helping to prepare the ground for peace. (The INSS is a think tank affiliated with Tel Aviv University’s Jaffee Center for Strategic Studies).

The Israeli-Palestinian struggle is not the only persistent conflict that the energy boom in Eastern Mediterranean Sea might ease.

Turkey is also looking to get in on the action. On top of its now-poor relations with Israel, Turkey also does not recognize Cyprus’ Exclusive Economic Zone in the Mediterranean (where exploration is currently taking place) and has threatened the island nation and Israel with force. (Turkey is the only country on earth that recognizes the so-called Turkish Republic of Northern Cyprus and does not recognize the Greek Cypriot-controlled Republic of Cyprus in the southern part of the island.)

Currently the U.S. State Department is working on a diplomatic solution involving the conflicting stakeholders of Cyprus, Turkey and Israel, through an agreement to share the oil and gas production in the Levant, a U.S. official told IBTimes in an interview. For the State Department, the wealth of hydrocarbons in the Mediterranean are seen as a way for neighbors in the Near East to mend their troubled relations by jointly profiting from energy revenues.

“The discoveries of hydrocarbons in the eastern Mediterranean are definitely now an incentive, and it could be a catalyst for peace for the region,” Yiorgos Lakkotrypis, Cyprus’ energy minister told IBTimes. “[Israel, Lebanon, Egypt and Cyprus] recognize that if you develop a stable environment where you can attract foreign direct investment ... These can be a new prospect for bringing both wealth and economic development to each of the countries, but [they] also can … create a new geopolitical map.”