- The Washington Times - Friday, August 26, 2005

Major natural gas fields off the coast of the Gaza Strip may prove a vital lifeline for a beleaguered Palestinian economy that has few other resources to exploit.

Israel’s withdrawal from Gaza settlements this month has heightened international interests in exploiting the fields, first discovered more than five years ago.

“It is the first natural resource that we have in Palestine,” said Omar Shaban, a Gaza-based economist.

“It’s a very unique thing,” he said. “We don’t have oil or metals. We are not in the [Persian] Gulf, where every day they discover something.”

The Palestinian Energy and Natural Resources Authority and the government of Egypt signed an agreement last month to explore ways to exploit the fields off the Gaza coast and market the gas through Egyptian ports.

The revenue from natural gas sales would be a welcome boost for the Palestinian territory, where one-third of the work force is unemployed and 61 percent of all households have incomes below the poverty line.

International handouts cover about 70 percent of the Palestinian government’s $2.2 billion budget.

A U.N. survey released Thursday found that the five-year uprising against Israel and the security barrier erected by the Israeli government have cost the Palestinian economy nearly $10 billion since the fighting began in 2000.

The economy shrank by 1 percent in 2004, according to the report.

“Economic realities on the ground after the prolonged conflict remain very harsh and uncertain, regardless of all the positive developments we’ve been witnessing recently,” Raja Khalidi, the report’s lead author, told reporters in Geneva.

Preliminary estimates suggest the Egyptian-Palestinian natural gas deal could generate between $40 million and $45 million a year for the Palestinian coffers.

BG Group, formerly known as British Gas, in November 1999 signed a 25-year exploration deal with the late Palestinian leader Yasser Arafat to explore the waters off the Gaza coast.

The London-based BG announced a series of promising finds off both the Gaza and Israeli coasts over the next four years.

But bringing the gas to market has proven a major hurdle. Israel is the natural buyer for Palestinian gas, but no deals have been made during the five-year intifada.

The Israeli government has openly worried that funds from the Israeli gas purchases could be channeled to Palestinian militants.

Palestinian gas from the BG Gaza field would most likely be piped to El Arish, the booming Egyptian Sinai port that is becoming a major transit site for gas shipments.

Market analysts estimate it will cost $400 million to develop the offshore Palestinian fields, with the intent that the pipeline would be operational by late 2009.

“If we have those [natural gas] revenues, we will have more stability and the Palestinian Authority will have more ability to meet its budget commitments,” Mr. Shaban said.

Ironically, El Arish would also be the point for Egyptian natural gas shipments to Israel, under an accord expected to be formally ratified next week.

Although the government of Israeli Prime Minister Ariel Sharon has resisted direct purchases of Gaza gas, it may be indirectly paying into the Palestinian accounts through the Egyptian deal.

The $2.5 billion Israeli-Egyptian accord includes an underwater pipeline to be built from El Arish to the Israeli coastal town of Ashkelon — bypassing the Gaza Strip entirely.

The 80-mile pipeline, scheduled to be operational in 2007, would allow Israel to purchase up to 1.7 billion cubic meters of gas annually from Egypt over the next 15 years.

Oil and Energy Trends, a leading industry trade publication, said the intifada and Israeli-Palestinian clashes held up the deal for years for political reasons.

But it said the accord could also serve as breakthrough for energy deals throughout the region, including Jordan, Syria, Lebanon, and even Turkey and Cyprus.

Joshua Mitnick reported from Tel Aviv.

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