A U.S. Perspective on Regional Gas Connections [AS DELIVERED]
Thank you Dr. Mor. It is a pleasure to speak again at the Israeli Energy and Business Convention. I commend you and the other organizers of this conference who have put together another wonderful agenda that is insightful and extremely relevant. I also wish to extend a warm welcome to those representatives from Cyprus, Egypt, Greece, Jordan, Turkey, and the Palestinian Territories who are attending this conference. It has long been a priority of my government to support inter-regional linkages, and we are seeing exciting developments in this regard in the natural gas arena. It is on this topic that I would like to offer a few thoughts, and am very pleased to know that representatives from regional partners are here.
Energy Could Help Israel Break with its History of Isolation in this Region
It Just Makes Sense – And I Mean Dollars and Cents
The natural gas fields are not only a boon for Israel but they present incredible opportunities to help other countries in the region that are currently facing energy challenges. If neighbors can trade their energy resources through connected infrastructure they can benefit from economies of scale, avoid building unnecessary distribution networks, and save on transportation costs.
Keeping the Eastern Mediterranean gas price competitive with other sources will mean looking for buyers close to home. The future that the U.S. government envisions for the region includes new and old pipelines connecting Israel’s offshore resources to Jordan, and potentially to Egypt, Turkey, Greece, Cyprus, and the Palestinian Authority. Not only would Israel benefit, in this scenario, so will many others. For example, new Israeli resources could allow Turkey to diversify its heavy dependence on a small number of suppliers, and Israel could use Turkey’s extensive pipeline network to export to Europe as well.
The success of all these plans, however, hinges on cooperation. Countries will save billions if they share infrastructure and market access. If they don’t share those resources, most of the gas might never get out of the ground.
Understanding through Energy Links?
In addition to the economic benefits, I believe that Israel and other Eastern Mediterranean countries could play seller and buyer roles that will promote understanding. I’m sure many of you have a relationship with a corner grocer, a mechanic or a baker that you regularly buy from. After a while your interactions take on more than just the exchange of money for a good but you get to know that other person. They ask about your family and you do the same. In some cases, these persons become your friends and you become a loyal client because you know that a seller/client relationship based on trust is valuable.
With natural gas sales, likewise, there is the potential to build greater understanding and trust. I would go further and say: Natural gas has the potential to change the geopolitical landscape in the Eastern Mediterranean for the better.
When I mention Greece, Cyprus, Turkey, Lebanon, Jordan and Egypt you might think about borders, some of which are closed. Natural gas could help you and the citizens of those countries think instead about neighbors, neighbors who can also be partners. Discoveries offshore Cyprus, Israel, Egypt, and potentially Lebanon have already redefined regional relationships and will continue to be a catalyst for increased economic and political cooperation through interconnection and integration. Memorandums of Understanding for various gas deals have been signed between Israel and Egypt as well as Israel and Jordan. Discussions are underway with other potential customers and partners.
Countries, like people, have a hierarchy of needs. Safety and security are primary needs and energy is essential for those priorities. If Israel and other Eastern Mediterranean gas producers can establish themselves as sources of secure energy supplies, that remain so in good times and bad, then trust amongst the countries in this region can develop. Energy will not solve the political differences in the region, but it can provide powerful incentives to accelerate political accommodation and encourage compromise.
The benefits of such connections are not just limited to this region. Linking the Eastern Mediterranean to European gas distribution networks through Greece and Turkey could also help our European friends. The Eastern Mediterranean can play a role in helping Central and Southeast Europe to diversify their sources of gas. Turkey has the potential to become a critical hub connecting Europe, Asia, and the Middle East. Eastern Mediterranean gas provides an exciting opportunity to enhance prosperity, economic security, stability, and political security. As in Europe, the United States is here in the Eastern Mediterranean to support our regional partners in their quest for energy security. This remains a top foreign policy priority for the United States, which is why Vice President Biden, Secretary Kerry and Special Envoy for Energy Amos Hochstein have devoted a significant amount of time to these issues.
But it is also true that the market is still looking for validation that historic political differences in this region will not get in the way of investment and development. If development of Eastern Mediterranean natural gas was just about common sense and you took out all politics and all the geopolitics, we might already have a great hub that was humming with pipelines going in different directions. So this future is possible, but it is not guaranteed.
We have emphasized to our Israeli friends and others in the region that Eastern Mediterranean gas can also translate into significant economic benefits, including greater employment, as long as there is a stable and predictable regulatory environment. As we often hear during political campaigns in democracies around the world, the issue is “jobs, jobs, jobs.” Development of Eastern Mediterranean gas means jobs in the drilling, distribution, pipeline construction, storage, and technology fields – just to name a few. It also means decreased energy costs for companies, household consumers, and governments that now provide energy subsidies. Cheaper energy means a higher standard of living and more economic development.
But deriving good economic conditions from affordable, reliable energy will take some work. I don’t mean just work of the exploration or extraction kind. It means creating secure and stable regulatory environments so gas producing companies want to invest in discovering and delivering more gas. President Obama said in his February 12, 2013 State of the Union Address, “the natural gas boom has led to cleaner power and greater energy independence. We need to encourage that. And that’s why my administration will keep cutting red tape and speeding up new oil and gas permits.” Israel can and should do the same.
Developing a large natural gas field in deep ocean waters requires a multi-year investment of billions of dollars. This investment is made because natural gas exploration firms have business models that often span decades from discovery of a field to delivery of gas over time in a STABLE and PREDICTABLE regulatory environment. The terms, in short, must simultaneously attract investors and advance the interests of the host countries. If that environment doesn’t exist, the gas exploration firms simply don’t know if they will make a reasonable return from their investment. And the reality is they will look elsewhere, because they can. So the stability of the investment platform is a critical factor in a country like Israel’s ability to realize the full potential of its energy resources.
The United States is a steadfast friend and partner of Israel with strong economic ties. The first free trade agreement the United States signed was with Israel in 1985. Today, we have $49 billion in two way trade. Israel is a top-20 source of foreign direct investment in the United States, and U.S. and Israeli firms work side-by-side on cyber defense. Because the United States cares about Israel, and supports Israel, we want it to be regionally integrated, and we believe that integration can and should include energy connections.
Some of you might recall the history of the Trans-Arabian Pipeline. As many of you know, it no longer operates. That oil connection, a creation of colonial times, became a casualty of regional discord. Today, through natural gas links between countries in this region, we could see the development of an Eastern Mediterranean version of the Trans-Arabian pipeline, but for natural gas. Unlike the Trans-Arabian, however, natural gas links in the Eastern Mediterranean region would be made by independent states, recognizing the benefit they can gain from trading with their neighbors.
For Eastern Mediterranean natural gas, regional connections and development, combined with stable and predictable regulatory regimes, will be the key. Through the discovery of natural gas supplies that are fortuitously spread around the Eastern Mediterranean, I am confident that we will soon see exciting new partnerships that could result in harmony and security for Israel and its neighbors.
The natural gas discoveries in Israeli waters have provided a great surge in optimism that natural gas cooperation would provide energy security, economic growth, and global stability in a notoriously unstable region. The United States wants to help make it happen.