The Yishai Gas Reservoir

A number of gas reservoirs have been found along the coast of Israel over the past years, as a result, the country has achieved energy independence for the first time since it was founded more than 70 years ago. The development of Israel’s gas reservoirs has become a subject of the highest national priority, which includes environmental, financial and social benefits; the use of natural gas greatly reduces air pollution in the country, reduces the cost of electricity and eases the cost of living, transfers a considerable cash flow to the national treasury and significantly strengthens the economy and Israel’s strategic and geo-political position in the international arena, as a regional supplier of gas.

The Yishai Gas Reservoir – a National Asset

One of these reservoirs is known as the “Yishai Reservoir” – a reservoir of natural gas that is located some 170 kms west of Haifa, in Israel’s Exclusive Economic Zone, bordering on Cyprus’s Exclusive Economic Zone. The reservoir is a geological continuation of the Aphrodite Reservoir in Cyprus and constitutes an integral part of this reservoir. In other words, Cyprus’s Aphrodite Reservoir ‘crosses the border’, with part of it in the possession of the Yishai Reservoir in Israel and part of it in the area of Block 12 in Cyprus. According to the estimates of the Israeli Ministry of Energy, the Israeli area holds some 10% of the total gas futures in the reservoir, which contains more than 120 billion cubic meters of natural gas. In order to illustrate this, Israel’s part in the reservoir equals the quantity of natural gas that is sufficient for the yearly use of electricity of the entire Israeli economy. The partners holding the Yishai Reservoir are ' Israeli Opportunity ', Nammax ,Oil and Gas, Eden Energy and  -Petroleum Services Holdings AS. The partners of the Government of Cyprus in the Cypriot part of the reservoir (Aphrodite / Block12 ) are Delek Drilling , Noble Energy  (now wholly owned by Chevron)  and Shell.

 

Preventing receipt of profits from the reservoir Reducing Israel's chances of success in international tribunals and setting a precedent for additional reservoirs to be discovered in its territory in the future.

The study also warns that " a tribute diplomacy " by Israel to Cyprus, even if not officially, but rather expressed in a continued status quo of turning a blind eye by Israel towards unilateral actions by Cyprus, can later become permanent conditions upon which depend the relationship between the parties . The study also shows that countries that allow unilateral production from a common reservoir in the first place mark themselves as being in a position of political, economic or military weakness. This is what happened in the case of Iran – Qatar, Ivory Coast – Ghana, and the Democratic Republic of Congo – Angola. Israel's concession could place it in the unwanted club of such countries.

In addition, development of the field unilaterally by Cyprus and its partners without the insistence of the State of Israel to secure its share in it would be a dangerous precedent that could affect the future status of Israel in the context of other reservoirs discovered in the Mediterranean and cross the maritime boundaries between Israel and its neighbors. Hence the implication is clear: the realization of the scenario in which the Aphrodite-Yishai Reservoir will be developed while ignoring Israel's rights will lead to far-reaching damage to Israel's image and its geopolitical status.

Since it is a single geological reservoir shared between the countries, Gas pumping from the Cypriot side will inevitably lead to gas pumping from the Israeli side of the reservoir. That is, as long as Israel's rights in the shared reservoir are not officially secured, Cyprus and its partners are likely to pump Israel's rightful share of gas in the reservoir. More than seven years have passed since the end of the drilling campaign in Yishai, which proved indisputably that the reservoir is common to both countries, but up till this day, the governments of Israel and Cyprus have not managed to reach an understanding concerning the joint development of the reservoir and the distribution of the resources between the two sides despite already agreeing that in principle more than a decade ago .At the same time, a series of unilateral moves on the Cypriot side of the reservoir by Cyprus and its partners overclouds the future of the Yishai reservoir and the rights of the State of Israel in this reservoir. 

It is important to emphasize that the dispute over the Aphrodite / Yishai reservoir between Israel and Cyprus has far-reaching consequences in the geopolitical and national contexts as indicated in a recently published study by the Maritime Policy and Strategy Research Center at the University of Haifa .The study warns that the continued policy of ignoring unilateral actions by Cyprus can lead to serious consequences in a variety of levels, including damage to Israel's standing in the region;

3. During June 2019, another obstacle was removed on the way to the development of the reservoir when Cyprus and its partners reached an agreement on the distribution of future profits between them from the sales of gas in the reservoir without any progress in negotiations between Israel and Cyprus. This raises concerns that Cyprus and its partners intend to hurry up and develop the joint reservoir without securing the Israeli part. 

4. In November 2019, the Cypriot government unilaterally approved the reservoir development plan – a step that marked the opening shot of the actual reservoir development. This came as a surprise as it has been expected that the approval of a development plan for the reservoir would be approved by the two countries especially when negotiations between the states regarding the holdings in the reservoir were not yet completed and the Cypriot government is well aware of the Israeli government's claims in this regard. This one-sided step clearly demonstrates the hawkish position of the Cyprus government and its blatant disregard for signed agreements with the Israeli government. Subsequently, the Director General of the Ministry of Energy, Mr. Udi Adiri, sent a letter to the companies holding Block 12 in Cyprus, warning them not to commence with development of the reservoir until the negotiations between the countries are completed 

It is important to note that Delek , which owns 30% of Cypriot side of the reservoir, explicitly admints in its annual reports and other reports of the company  that part of the Aphrodite reservoir resides in the domain of Yishai, and that the information it has received from the Yishai well contributed to a no less than 12% increase in gas reserves in the reservoir while strengthening

the level of certainty of the reservoir and reducing the level of development
risk.

 

The controversy

In 2010, Israel and Cyprus agreed on a joint development and production in the event of a discovery of reservoirs spanning the economic waters between the two countries. The agreement corresponds exactly to the case of the Aphrodite – Yishai reservoir. 

More than seven years have passed since the end of the drilling campaign in Yishai, which proved categorically that the reservoir is shared between the countries but to date the governments of Israel and Cyprus have failed to reach an agreement regarding the joint development of the reservoir and/or distribution of resources in the reservoir between the sides. At the same time, Cyprus and its partners – Delek Drilling, Noble Energy (Chevron) and Shell accelerate the preparations for the commencement of the development of the reservoir: 

1. According to annual financial reports of Delek Drilling and foreign media
reports, there is significant progress in agreements with Egypt and Shell Regarding the transportation of gas from the
reservoir and its marketing to Egypt, while ignoring Israel's inseparable sharein the reservoir.

2. In April 2019, the Government of Cyprus ratified the agreement with the Government of Egypt regarding the laying of an underwater gas pipeline directly from the Aphrodite Reservoir to the Egyptian shore without obtaining the approval of the Government of Israel for this move. 

Dangerous negotiations

For the past seven years, Israel has been lazily negotiating with Cyprus regarding the development of the Aphrodite – Yishai reservoir .It is might be that Israel's starting point is that the dispute will be resolved by itself in due course – that is, on the eve of the development of the reservoir – and that Cyprus will not dare to commence development without first reaching an understanding with Israel. But all signs indicate that the actual development of the field is taking shape and that the intention of Cyprus and its partners is to carry out unilateral steps while ignoring Israel’s part in the reservoir. Israel has chosen to ignore the fact that once the preliminary preparations for the development of the reservoir have been completed – including arranging external financing and signing the agreement to sell the gas from the reservoir to Shell and its delivery to Egypt – it will no longer be possible to stop the development Thus the State of Israel will lose its ability to maximize its defense of its rights to the reservoir, and will remain at the mercy of Cyprus and its partners. As time goes by, the signs and questions are growing concerning Israel’s position, which is seemingly acting in contrast to its own interests. None-the-less, it should be noted that the point of no return has not yet been reached. Israel must prevent the unilateral development of the reservoir which will not consider its rights and lead to a real damage of its image and strategic position in the region. It must do so through the various means at its disposal, including its senior regional position, as well as the terms of the agreement between the countries from 2010. 

  • Aspects connected to defense: the cost of shielding the highway around Gaza is NIS 100 million. From the income that will be received in the future from the Ishai Reservoir, it would be possible to pay for the shielding of this highway, as well as shielding the northern settlements in preparation for the threats along the Syrian border.
  • Aspects connected to the Health System: Recently the Director General of the Ministry of Health said that the Health System is need of NIS 3 billion in order to avoid a colossal crisis. From the income that will be received in the future from the Ishai Reservoir, it would be possible to improve the system in wondrous ways: starting with additional beds and up to the establishment of new hospitals.
  • The war against road accidents: the costs of immediate shielding of Highway 90, the deadly road in the south, is some NIS 170 million – a negligible sum in comparison with the billions from the Ishai Reservoir. Despite the fact that the needed changes in infrastructure are estimated at billions, the NIS 3 billion* that are expected to be received from the Ishai Reservoir would cover the lion’s share.
  • Damage to the Educational System: at the beginning of the year, we were told that the Finance Ministry intends to cut NIS 350 million from the Ministry of Education’s budget. The significance of this is damage to the plans for building 400 new classrooms and 10,000 pupils that will remain without any educational framework.
  • The handicapped suffer more: despite the fact that the government has approved a rise in the handicapped persons’ allowances, as of the original budget for the year 2019 (before the stage of the cutbacks), no rise in the allowances is planned. Currently, with the planned cutbacks, the chances that we will see increased allowances for the handicapped are flimsy. The budget for this step is NIS 2 billion, less than the sum that is expected to be received from realized the rights to the reservoir.

What could be done

?with the money

Recently, an expert in value estimation – Dr. Yehoshua Hooper, from Tel Aviv Univeristy – prepared an economic report for the partners in the Ishai Reservoir, from which it is clear that by relinquishing the country’s rights in the Ishai Reservoir, the country will incur a loss of more than 3 billion Shekels*. This is a privilege that Israel cannot allow itself, especially in light of the publications concerning an apparent horizontal cutback in the government Ministries’ budgets, on the background of the repeat elections and in light of the expected rise in taxes in an effort to cope with the growing deficit.

The country could use the sum of 3 billion Shekels* in various and important ways. To illustrate this, here are a number of major examples for possible uses of this sum:

*According to the economic report that was prepared for the partners in the Ishai Reservoir by Dr. Yeshosua Hooper, who holds a PhD in Finance and Accounting from Tel Aviv University and is an expert in Value Estimation.