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Australia’s Woodside Petroleum goes to Israel

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Australia's biggest oil and gas firm, Woodside Petroleum announced it is buying a 30 percent share, valued up to $2.5 billion, in Israel's Leviathan natural gas field.

Israel, a nation once thought to be devoid of natural resources in recent years has found vast amounts of natural gas deep under its Mediterranean waters.

The Leviathan discovered in 2010 is Israel's largest gas field, and it is generally considered to fall within Israel's exclusive economic zone in the Mediterranean, despite an earlier dispute with Lebanon. The gas finding may not only make Israel energy self-sufficient for decades but also a world leader in energy exports - including possibly to Europe and Asia.

Under the Woodside deal the gas field is operated by US firm Noble Energy, but Woodside will operate any liquefied natural gas (LNG) plant to be built as the field is developed. Woodside CEO Peter Coleman said:

"We have a proven track record of safe and reliable operations in Australia and being selected as the Leviathan Joint Venture's preferred partner in a competitive bidding process demonstrates the value of our LNG development capabilities."

When asked about security risks, Mr Coleman reportedly said:

"We've made our own assessment of security risk. We have spoken not only to Israeli security forces but also reviewed potential sites for onshore facilities and made our own risk assessment around that. We feel that's manageable... Woodside's assessment of political risk for Israel, or for Burma, where the company is also considering investments, was no different to any other country, and was based on the stability of the rule of law and the government's willingness to encourage foreign investment."

Other bidders for the project included Russia's Gazprom, France's Total and China's National Offshore Oil Corporation.

Simon Henderson of the Washington Institute commented that there may be political fall out with Russia over the Woodside deal:

"... Moscow is no doubt disappointed... The company [Gazprom] may well fear that even relatively small Israeli gas volumes could threaten its role as the predominant exporter to Europe. Political retaliation is therefore a real danger: Moscow is believed to have warned Israel that Russia is the only party capable of persuading Syria and Hizballah not to target Israeli offshore platforms with their Russian-supplied Yakhont radar-guided cruise missiles."

Political Ramifications:

The Woodside deal highlights the changing political and economic ramifications of the new gas fields in the East Mediterranean.

Israel may emerge an energy powerhouse, but on the other hand the search for other gas fields in the East Mediterranean by regional neighbours particularly Lebanon, Egypt and Turkey could lead to conflict over border disputes.

Professor Meghan O'Sullivan of Harvard's Kennedy School of Government in an article on Bloomberg warned:

"Because nothing is simple in the Middle East, there is also a real threat that these gas discoveries could serve as a spur for conflict rather than economic growth... Exploration continues, and it could be only a matter of time before a field is discovered straddling contested boundaries."

Lebanon and Israel have no defined maritime border. Lebanon has said some Israeli fields may stretch into its waters and has asked the United Nations to intervene to prevent a conflict over exploration areas, while Hezbollah has repeatedly pledged to protect the nation's offshore resources. Cyprus has offered to mediate the dispute between Lebanon and Israel.

The Associated Press outlines the dispute:

"Both Lebanon and Israel claim a small maritime area of 850 square kilometers. The dispute has held up ratification of the 2007 Lebanese-Cypriot agreement, defining Exclusive Economic Zones among the three countries. It has also led to bitter exchanges and threats between Israel and Lebanon. Neither immediately commented on the mediation offer from Cyprus. Lebanon and Israel remain technically in a state of war and have fought several battles over the past four decades...

Lebanon says that a bilateral agreement signed in 2010 between Cyprus and Israel and ratified a year later conflicts with the United Nations Convention on the Law of the Sea. Lebanon demands that it be amended in accordance with international laws that govern the demarcation of maritime borders among states. Israel insists that its undersea oil development projects are all in its territorial waters."

The Republic of Cyprus has also discovered large off-shore gas fields, and Israel is in discussion with Cyprus to build an undersea gas pipeline between Israel and Cyprus that would enable Israel to export LNG to Europe.

Israel's cooperation with Cyprus is causing concern in Turkey. Israel once had an ally in Turkey, however, since 2008, and especially since the Gaza Flotilla incident in 2010, there has been a deep freeze in the relationship that some also link to Israel's closer ties to Cyprus.

Cyprus was split into Greek and Turkish zones in 1974, after an invasion by Turkey. Turkey maintains de facto control of the northern part of Cyprus and does not recognise the Republic of Cyprus as a sovereign nation. Meanwhile, no other state recognises the Turkish Republic of Northern Cyprus, which controls the northern half of the island. Turkey has now commenced its own energy exploration in the area. Tensions were high when Turkey sent an exploration vessel accompanied by warships and jets to stop the Republic of Cyprus drilling for oil and gas last year. Oil companies have since stayed away from northern Cypriot waters as tensions with Turkey persist. Turkey has said development projects should await resolution of Cyprus' political status.

Meanwhile, the discovery and accessibility of off-shore energy fields not only in the East Mediterranean but also around the US and Africa, could in the long term significantly challenge the traditional Western dependence on Middle East oil, and therefore change the global balance of power.

As the New York Times has noted:

"This striking shift in energy started in the 1990s with the first deepwater wells in the Gulf of Mexico and Brazil, but it has taken off in the last decade as a result of declining conventional fields, climbing energy prices and swift technological change.

The United States may now have the means to reduce its half century of dependence on the Middle East. China and India may have the means to fuel the development of their growing middle classes. Japan and much of Europe may have the chance to reduce dependence on nuclear power. And, at least theoretically, poor African countries might be able to lift themselves out of poverty."

Fortunately for Woodside, Israel's Leviathan gas field is largely accepted to be within Israel's territory and therefore not a likely cause of conflict. But as discussed, the new energy discoveries appear to have game changing implications not only for Israel but also for global politics.

Sharyn Mittelman

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