Israel and Lebanon: What are the Gas Issues?

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On Sunday 05 June 2022, an FPSO Energean vessel entered the maritime area disputed by Lebanon and Israel, provoking a political crisis. The exploitation of the Karish field, as well as the exploration of the gas potential of the area, is a major issue for the region. In the midst of a boom in European gas demand, the two countries are negotiating from their maritime border, a decades-old dispute.

Lebanon and Israel negotiate their maritime border

The arrival of the Energean ship to exploit Karish has reignited the dispute over territorial waters between Israel and Lebanon. Thus, Lebanon has stated that it considers any exploitation activity in the area under discussion as an act of aggression and provocation. Under these conditions, the two countries accepted American mediation in order to find a compromise and fix their border.

American diplomat Amos Hochstein, who arrived on June 13, is the special envoy and coordinator for international energy affairs. He is responsible for mediating the issue of the Israeli-Lebanese maritime border, i.e., overseeing the indirect negotiations. The objective is to avoid escalating tensions between the two countries, which are still officially at war.

This framework is also intended to avoid the intervention of the armed group Hezbollah, a major political force in Lebanon. The organization is strongly opposed to Israel, which it threatens with reprisals against any exploitation activity in the disputed area. Although the group officially aligns itself with the Lebanese government, a history of warring factions pushes the states to negotiate peacefully.

What are the official positions of the two parties?

Israel claims full sovereignty over the Karish gas field. For this, the state relies on the official Lebanese claims transmitted to the UN in 2011, delineated by line 23. Lebanon would nevertheless retain the majority of the Qana field, whose potential is being explored.

In turn, Beirut announced a maximalist claim up to line 29, thus encompassing the Karish field. However, this position is a negotiating position, not a goal in itself, because the argument is too fragile. According to Reuters, Michel Aoun could hope for “line 23 and a bit more”.

Lebanon Israel maritime border

Lebanon in a weak position?

Lebanon seems to be the most dependent on the outcome of the negotiations, as the country is facing an unprecedented crisis. Israel is not left out, however, as gas exploitation in the area represents a colossal economic stake.

In fact, the balance sheet for the year 2021 is overwhelming for Beirut. As a result, more than half of the population lived below the poverty line last year. The debt to GDP ratio also reached 180.7%, while the Lebanese pound lost 85% of its value between 2019 and 2021.

According to Energean, the Karish field has a capacity of approximately 4.e-17 Gm³ of gas. It is therefore essential for Israel, which has been relying on gas exports for several years. On the verge of economic collapse, Lebanon is also focusing on the remaining exploration areas, such as Qana and Block 9.

FPSO

Negotiations have stagnated since 2010

This is not the first attempt at negotiations around the maritime border of the two countries. Thus, after the discovery of deposits in 2010, discussions had already been initiated under American mediation. At the time, Israel claimed a border ending at line 1, while Lebanon claimed it at line 23.

Israel’s claim was based on the agreement signed in 2007 by Cyprus and Lebanon concerning their exclusive economic zones (EEZ). However, this agreement was never ratified by Beirut, due to a miscalculation. Frederic Hof then proposed a solution allocating 55% of the area to Lebanon: the Hof line, which was refused by both parties.

Resumed in October 2020 after 8 years of status quo, negotiations failed again after only two months. Nevertheless, they gave rise to the framework agreement under which the United Nations and the United States supervise the indirect discussions. In addition, Lebanon at that time extended its claims to line 29, which includes Karish. Israel responded by pushing the claimed border northward to the city of Saida.

This time, however, the negotiations are more tense than ever because of the international context and the stakes involved in its outcome. In fact, the Russian invasion of Ukraine, European sanctions, energy price inflation… are all factors favoring the rapid expansion of natural gas exports.

Egypt

How Israel could become a gas hub

The current global context is rekindling the historical competition in the region for the top spot in the gas market. Indeed, Egypt and Israel are the two countries with the potential to become gas hubs in the region. The production capacity represented by the fields located in the disputed waters therefore takes on a different significance.

Israel already controls several gas fields, such as Leviathan, which represents 620 bcm of gas alone. In addition, the development of the Karish field would give it a very significant gas production strength. A future pipeline through Cyprus would allow it to export massively to Turkey and Europe.

For its part, Egypt is competing with Israel to become a gas hub, particularly thanks to its liquefaction plants. In 2015, the country also discovered Zohr, the largest gas field ever found in the Mediterranean. It is estimated that Egypt could hold up to 75.5 trillion cubic feet of gas.

 

Gas israel Lebanon Egypt

The division of the market between Egypt and Israel upset?

The competition between the two potential hubs is tough and the balance has often shifted in recent years. The same pipeline transported Egyptian gas imported by Israel, and then Israeli gas imported by Egypt. Egyptian domestic demand has in fact exploded, and has exceeded its production since 2014.

For its part, the European Union supports the formation of a hub around Egypt. It thus wishes to reduce its dependence on Russia while avoiding Israeli political instabilities. This would also allow it to take advantage of the clear legal framework and the already existing Egyptian infrastructure.

It also signed an agreement with Israel and Egypt on Wednesday 15, in an effort to replace Russian hydrocarbons. From now on, it will be supplied with Israeli natural gas, liquefied and transported by Egyptian infrastructures. Lebanon has signed an agreement with Egypt, from which it will import gas to partially offset the constant power cuts.

In this context, for Israel, the economic stakes of negotiations with Lebanon go beyond its national borders. In direct competition with Egypt to become a major global energy hub for Europe, the resources of the disputed area are essential. However, the country will have to reconcile these issues with Beirut’s national interests, especially in the face of Hezbollah’s determination.

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