THE BLOG

Gaza Has Energy But No Power

19/07/2017 11:40

For more than a month now, the two million people in the Gaza Strip have endured severe electricity shortages. Electricity is only available for up to three hours a day. Life in the Gaza Strip has reached new levels of hardship. It is the hottest time of year. Basic services, such as sewage disposal are inoperable due to the lack of power. Lives are at risk due to the higher risk of disease and the inability of hospitals to function adequately. Everyday life tasks such as cooking, washing, laundry as well as working and going to school have all become more difficult.

The immediate trigger for the current crisis is the Palestinian Authority's effort to isolate its rival Hamas in Gaza by refusing to pay for Israeli electricity supplies to the territory. Gaza has its own power station but this is dependent on diesel imported from Israel or Egypt. Both countries obstruct the imports and combat smuggling. In any case, the power station cannot meet all of Gaza's electricity needs. The Hamas administration in Gaza does not have the financial resources to pay for the diesel, even if it was allowed to import it.

This is a crisis that has been years in the making. Its origins stretch back to before the blockade imposed after then Israeli Prime Minister Ariel Sharon in 2005 ordered a unilateral withdrawal of Israeli security forces and settlers from the Strip. The blockade does not help the situation. It has made the supply of diesel erratic at best and prevented investment in the transmission grid or other parts of the power generation system.

The irony is that the Gaza Strip could be self sufficient in energy and even be an energy exporter. It is not going to become the next Kuwait or Qatar but is does have a share of the immense natural gas resources found in the region since the start of the century. In 2000, the then FTSE 100 listed gas company BG Group drilled two wells around 36 kilometres from the Gazan coast and found around 1 trillion cubic feet of gas. This is not a huge resource but would be sufficient to meet Gaza's needs and provide a surplus for export.

The Gaza Marine gas field remains developed. The gas remains under the seabed. It would have taken between three and four years to design and install the facilities to produce the gas and pipe it to shore. A combination of political and commercial factors have kept the gas under the sea and prevented development. BG Group announced the Gaza Marine discovery on 28 September 2000. The next day, 29 September, Ariel Sharon made his provocative visit to the Temple Mount in Jerusalem. The resulting protests triggered the second Intifada. The political backdrop became more difficult following Hamas' victory in the January 2006 Palestinian elections and its subsequent assumption of power in Gaza.

On the commercial front, the main issues were finding a large enough market for the gas and agreeing a fair price for the gas. While the Gaza Strip was one market for the gas, there was insufficient gas demand to underpin the costs of developing the field which run to several hundred million dollars. The Gaza power station was (and remains) the only large scale gas consumer. The World Bank in May 2007 recommended converting it to use gas. Even so, it would only account for 10-15% of the potential production from Gaza Marine, leaving 85% of the gas for export and to earn much needed revenues for the Palestinian economy.

When gas was first discovered off Gaza, the other obvious market was Israel itself. At the time, it had sufficient long term demand to meet the field development costs. Israel was committed to converting its power stations to gas and encouraging new entrants to the sector. Its own gas production was declining (its own large discoveries were still to come). However, the Israelis were demanding a low price and commercial negotiations with BG finally broke down in December 2007. This was after BG had also taken a serious look at exporting the gas to Egypt for onward export to world markets. In 2006, the Israeli government directly intervened to ask the British government to persuade BG to return to negotiating with Israel.

There were other factors at play that have also prevented the Gaza Marine field from being developed. There was rarely 100% commitment from all the participants all the time to make progress on the project. After 2007, BG's interest in developing the field waned as it became a less material part of its portfolio and there were easier prizes to go after. The Palestinian National Authority (PNA), who had awarded the licence in 1999 always seemed reluctant to really push for agreement. The PNA was worried about the political price the Israelis would ask it to pay to allow the project to go ahead. They were also concerned about internal criticism that whatever deal they reached would not be good enough.

Agreement on Gaza Marine would have been a win for everyone. Gaza residents would have gained access to a reliable energy supply, the PNA would have gained revenue for economic development, Israel would have gained access to more gas at a time in need it and BG would have made a return on its investment.

The lack of agreement means that everyone loses. Insufficient energy has contributed to the humanitarian crisis in Gaza, Israel continues to face the threats from an unstable situation and criticism for its policy towards Gaza, the PNA does not have the revenue stream and BG was left with a stranded asset.

Michael Barron worked as a government relations manger for BG on the Gaza Marine project at various time between 2005 and 2014. He continues to take an active interest in the natural gas sector in the Eastern Mediterranean.

Comments

CONVERSATIONS