May 22, 2024
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Why Hamas-Israel War Threatens Regional Energy Projects

The risk of the ongoing Middle East conflict involving Israel and Gaza-based militant group Hamas spilling over and developing into a regional conflict remains high with Lebanon’s Hezbollah repeatedly warning Israel against escalating.

Experts are now warning that there could be “a severe degradation of the investment climate” as well as serious energy flow disruptions if war breaks out along Israel’s northern border with Lebanon and Iran becomes involved. One such critical energy infrastructure under threat is the Arab Gas Pipeline (AGP). Gas shipments via AGP–which connects Egypt with Jordan–have been disrupted in the past by attacks in the Sinai Peninsula. AGP has a reported capacity of 234 billion cubic feet per year (640 million cubic feet per day).

Disruptions on AGP gas flows would hurt Jordan the most since the country imports more than 90% of its energy needs and relies on gas deliveries via Israel and Egypt. Jordan is home to a large Palestinian population, and strikes on Gaza have worsened tensions and social unrest in the country. reports that AGP currently ships 44 Bcf of natural gas annually from Egypt to Jordan.

But Jordan is hardly the only country that would find itself in trouble if AGP gas flows were interrupted. Egypt relies on Israeli gas imports to meet some of its domestic demand especially in the summer cooling season, as well as for re-exports that have become an important source of scarce foreign currency.

Israel suspended production at Chevron Corp’s (NYSE:CVX) Tamar gas field on Oct. 9, shortly after its war with Hamas began. Israel redirected supplies through a pipeline in Jordan, rather than a direct subsea pipeline to Egypt.

Obviously, shutting down the Tamar gas field has also been hurting Israel’s coffers. Israel–the second-largest natural gas producer in the Eastern Mediterranean after Egypt–has been exporting 70% less natural gas at a cost of around $200 million a month since the war broke out.

On a more granular level, several energy projects in the region are already facing delays or cancellations as the war grinds on.

Meanwhile, reports have emerged that executives at British oil and gas multinational BP Inc. and Adnoc are anticipating further delays on the deal until the political situation improves. Experts are worried that a surge in civilian casualties could make it politically untenable for the companies to proceed, with the death toll in Gaza reportedly in excess of 10,000. Israeli Prime Minister Benjamin Netanyahu has forged an emergency government to direct war against Hamas, and his defense minister has vowed to wipe the militant group “off the face of the earth.”

BP itself has become the center of takeover speculations with its latest spate of poor results making it seem vulnerable in the current wave of consolidation in the oil and gas sector. However, the company has dismissed the rumours.

Last year, Lebanon and Israel established a maritime border for the first time ever. Back in May, Lebanon’s Energy Minister Walid Fayad said they hope to determine whether the exploratory block has recoverable gas reserves by the end of the current year.

Unfortunately, the war is very likely to make cooperation between the two countries almost impossible, with Lebanon being home to Israel’s arch-enemy, Hezbollah. Israel has been shelling southern Lebanese towns in response to rocket attacks by Hezbollah.

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