Egypt nears deal with Israel and PA to revive Gaza offshore gas production

Gaza City - Palestinians demand their right to receive gas from a maritime field off Israel and the lifting of the blockade, September 13 (Reuters)

Adam Khalil

Middle East Eye  /  October 20, 2022

The Gaza Marine natural gas fields have been untapped for two decades mainly due to Israeli objections and obstacles.

An agreement between Israel, the Palestine Authority (PA) and Egypt to revive gas exploration at fields off the coast of Gaza may be close, Palestinian sources have said. 

The deal would see an Egyptian company facilitate natural gas production in the offshore fields using Israeli infrastructure, a Palestinian source familiar with the talks who spoke on condition of anonymity told Middle East Eye.

The cash-strapped Ramallah-based PA, represented by the sovereign wealth vehicle Palestine Investment Fund (PIF), will reap 27.5 percent of profits from the field.

PIF’s partner, the Palestinian-owned Consolidated Contractors Company (CCC), will get another 27.5 percent. The remaining 45 percent will go to the Egyptian Natural Gas Holding Company (EGAS), which will operate the project. 

 “The talks between the Palestinian coalition companies and the Egyptian company are progressing greatly to reach a final agreement soon,” the source told MEE

The Gaza gas fields were first discovered in 1999 in Palestinian territorial waters.

The first discovery, located about 36km off the coast, was called Gaza Marine 1 and contains an estimated 33 billion cubic metres of natural gas. The second field, located on the sea border area between Gaza and Israel, was called Gaza Marine 2 and contains an additional three billion cubic meters.

The fields have long been seen as a major stepping stone towards Palestinian energy independence but they remained untapped mainly due to Israeli objections and obstacles. 

In November 1999, a 25-year contract for gas exploration and development of gas fields was signed between the British Gas Group (BG Group), the CCC and the PIF. 

BG Group withdrew from the project in 2016 and handed it over to Shell, which in 2018 also withdrew from the agreement due to various disputes. 

Egypt is now working with Israel and the Palestinians to finalize a deal that could unlock the untapped fuel, amid global gas shortages caused by the Russian war in Ukraine and western sanctions on Moscow. 

‘Strategic scheme’

On Tuesday, the Israeli Public Broadcasting Corporation said a trilateral agreement had been reached between Israel, the PA and Egypt but mentioned no further details.

A day earlier, the Palestinian Prime Minister Mohammed Shtayyeh said at the start of the weekly ministerial session in Ramallah that the government would form a team that includes several ministers to follow up on the matter.

He said the PIF chairman Mohammed Mustafa and his team were negotiating with Egypt to conclude an agreement on gas, in a manner that serves Palestinian national rights and benefits. 

A senior Palestinian official told MEE that the PA’s ministries would facilitate the mission of the PIF in the issuance of the necessary permissions.

“The gas extraction project is an important strategic scheme for us,” said the source, who spoke on condition of anonymity.  

The official said he hoped gas will be extracted by 2025 through Israeli infrastructure that can be used for gas transportation, noting that the Palestinians will need about 15 years to prepare their own infrastructure.

However, Palestinian economic expert Samir Hulileh said there would be no extension of the gas pipeline to the Israeli city of Ashdod, but rather the lines would be extended to the Egyptian city of Al-Arish.

The Egyptian company would then process the gas and sell it, along with Egyptian gas, to Europe. 

Hulileh said that the annual income for the PA from the gas field once the operation is underway will be between $700-$800m, equivalent to $7-8bn within 10 years.

“The prime minister and the government are very interested in it because it will generate sums of money that will help the government’s treasury,” the official PA source said. 

Israel and Hamas 

In 2021, the PA signed a memorandum of understanding with Egypt to develop the Gaza gas field and the necessary infrastructure. 

However, Cairo still needed to get a green light from Israel to get the project up and running. 

The Palestinian official who spoke to MEE said that current Israeli approval is preliminary. The final approval cannot be obtained before the formation of the next Israeli government, which will have the final decision.

An Egyptian source confirmed to AFP earlier this week that his country was “making contacts with all parties, including Israel, to develop and benefit from the Gaza gas field,” stressing, this would “support the Palestinian economy.”

Meanwhile, the Gaza Strip has seen growing calls in the past month by Palestinian factions, led mainly by Hamas, to revive explorations.

Billboards and banners were put up across the Gaza Strip with the caption “Our Gas is Our Right”, as Lebanon signed a maritime deal with Israel that could unlock its own gas riches in the Mediterranean Sea. 

Since 2016, the Gaza Strip has been suffering from a severe shortage of electricity as a result of the Israeli bombing of the only station at the time. There has also been a lack of funds to finance the petrol needed to operate the station amid the 15-year-long Israeli-led blockade. 

The offshore fields can help Gaza’s power station switch from oil to gas, which would increase its operational capacity and reduce costs that are currently being paid by Qatar.

Hamas spokesman Hazem Qassem told MEE, “We are following up on all developments related to the gas issue and the agreements.” He added, “Our people’s right to benefit from its natural resources and gas is guaranteed in all international laws and resolutions.”

Economist Hamed Jad hoped a deal can be finalized by the end of the year, but said it was subject to Israeli cooperation. 

“The Palestinian attempts, since the discovery of gas fields off the shores of Gaza, have continued ever since but every time there are new obstacles. Now in light of the global energy crisis, the issue has come up again,” Jad told MEE.

He added that a final agreement should include an understanding with Hamas, the de facto ruler of Gaza, to avoid further challenges in the operation of the field. 

But Jad remained positive, saying that Egypt “knows how to deal with Hamas and how to deal with Israel.”

Adam Khalil is a freelance journalist based in the Gaza Strip