Israel, Lebanon Near Maritime Border Deal, Opening Up New Gas Source for Europe

The deal, which has been in the works for a decade, would allow Israel to quickly follow through on its commitment to sell gas to the European Union, which is searching for new energy sources following Russia’s invasion of Ukraine and subsequent sanctions on Moscow.

The State Department’s energy envoy Amos Hochstein has been shuttling back and forth between Beirut and Jerusalem in recent months to close the agreement, which became more time sensitive after a gas rig arrived at the Karish field in the spring.

The deal also marks a diplomatic achievement for Israel by securing international recognition of its maritime security border with Lebanon and could act as deterrence against another war, Israeli officials say. Israel and Lebanon have fought two major wars and don’t have diplomatic relations.

London-based Energean PLC says it is ready to start operating a rig at the Karish field as early as this month. Israel has said it won’t wait for an agreement with Lebanon to start extracting the gas from Karish, a move Iran-allied Lebanese militant group Hezbollah said it would oppose forcefully.

Hezbollah has tens of thousands of rockets aimed at Israel. In July, Hezbollah sent drones toward the Karish gas field twice, and Israel’s military said it shot them down. Since the Energean rig arrived in the spring, Hezbollah has threatened to attack it if Israel extracts gas from the site before a deal is struck.

On Saturday, in a change of tone, Hezbollah leader Hassan Nasrallah said “If a good result is reached, [the deal] will open great economic and promising prospects for the people of Lebanon.” The country has been suffering from a severe economic crisis.

“This deal strengthens Israel’s security and Israel’s economy,” said Prime Minister Yair Lapid in a cabinet meeting Sunday.

The agreement comes ahead of an Israeli election in November. Opposition leader Benjamin Netanyahu characterized the deal as a win for Lebanon and a loss for Israel. “We will win the elections and cancel this shameful agreement,” he tweeted Monday.

Israel’s cabinet is slated to discuss the final offer on Thursday, but it isn’t yet clear whether the government will seek parliament’s approval for the deal, which could delay its final authorization.

The Lebanese government said Monday that it would ask for a number of technical amendments to the proposal, but could sign an agreement within days.

The deal won’t lead to a large influx of gas into Europe immediately, say energy analysts, because neither Israel nor Egypt have much to spare after meeting current obligations. Also, there isn’t an available route from the Eastern Mediterranean to Europe that could carry large amounts of gas.

Energy analysts estimate that a small surplus of gas from Israel could make its way to Europe by next winter via Egypt’s liquefied-natural gas facilities, reducing gas prices for some southern European countries such as Italy or Greece. Energy analysts estimate that number could be 2-3 billion cubic meters. In 2021, the EU purchased 155 bcm of gas from Russia.

Large natural-gas finds in Israeli, Cypriot and Egyptian waters during the past decade have turned the region into a global energy source and studies show there are still large resources that remain undiscovered. An agreement between Israel and Lebanon could promote confidence among private and public investors and help inject the capital needed to discover and export gas in the Mediterranean basin.

For Israel, which has already developed a few gas fields over the past decade, an agreement with Lebanon would strengthen its hand as a rising energy powerhouse in the region and ensure its ability to provide gas to Europe.

But until this dispute is resolved, cash-strapped Lebanon will be unable to find private companies willing to develop any gas fields in the area, which it desperately needs to help resolve its economic and energy crises, analysts say.

“The Eastern Mediterranean basin now looks super attractive. While two or three years ago, it looked super unattractive,” said Henning  Gloystein, director of energy, climate and resources at the Eurasia Group. “This is how geopolitics can change everything.”

The French company TotalEnergies SE is slated to develop the Qana field for Lebanon. Total didn’t immediately respond to a request for comment.

One outstanding issue is whether Israel will receive money from profits generated from the Qana gas field, which will be controlled by Lebanon but sits in the waters of both countries. Israeli officials are currently negotiating in Paris with Total over how Israel can receive its share of the profits from Qana, the Israeli Energy Ministry said.

Lebanese Energy Minister Walid Fayyad said it would likely be at least another two years before Lebanon could begin “production activities” at Qana. Depending on the size of the finds, he said gas from the field could serve the domestic market or be sent abroad.

But Mr. Fayyad said Lebanon was “indifferent” on arrangements companies like Total might make with Israel to push the maritime deal over the line.

“What they do is their business. What we do is our business, which is not to give up any share of our resource,” said Mr. Fayyad.