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In April, the UAE’s Mubadala Petroleum is part of Mubadala Investment Co, a sovereign wealth fund with US$232 billion in assets, and the company signed a memorandum of understanding to purchase Israel A 22% stake in Tamar offshore oil field. Once completed, this will be the largest commercial transaction between the two Middle Eastern countries since the normalization of relations in August 2020.
Although the recent escalation of the occupied Palestinian territory and Israeli bombing of the Gaza Strip are expected to greatly increase the political risks associated with investing in the Israeli oil and gas sector, they are unlikely to prevent Mubadala from completing this landmark transaction.
The UAE has gained a lot of benefits from this acquisition. Whether it is economically or politically, the value of the UAE transaction is believed to be as high as US$1.1 billion. In addition, Israel is determined to complete the Mubadala deal at all costs because it will increase the interest of other foreign investors in its oil and gas industry.
In order to fully understand the importance of this transaction and its potential to continue to develop regardless of the latest round of conflicts in the region, we need to study the driving force behind the transaction.
Israel desperately needs UAE investment
Israel plans to launch a new round of tenders in the near future for exploration and development licenses for its main gas fields-Tamar, Leviathan, Tanin and Karish. It hopes that the issuance of such permits can significantly increase the amount of natural gas reserves that will be provided to the country in the long run.
However, to achieve this goal, it needs to attract the interest of major international oil companies (IOC)-it has been trying to do this in previous tenders.
In fact, apart from the United States’ Nobel Prize and most recently Chevron, Israel’s natural gas fields had no interest in major Western International Olympic Committees in the past. Most industry giants, including ExxonMobil and Total, have refused to participate in Israel’s previous bidding, explaining their decision by pointing out the “complex” geopolitical situation surrounding the country’s energy.
Israel’s gas fields are not large enough to ensure unconditional benefits from the major Islamic Conference organizations, but they are also so large that the natural gas extracted from them cannot be consumed exclusively within Israel. Therefore, in order to attract the interest of the Organization of the Islamic Conference and use these resources, Israel needs to prove that the natural gas it extracts can be sold on an external market. But this is not an easy task.
To enter the Asian market, Israel will need to develop liquefied natural gas (LNG) production capacity, which it does not currently have. In addition, these markets are highly competitive, so even if Israelis develop the necessary production capacity, they may not be able to penetrate these markets.
There are also obstacles to Israel’s access to saturated European markets.
The EastMediterranean Pipeline Project (EastMed) aims to deliver Israeli natural gas to the consumer market in Southern Europe. The project has not been completed eight years after its establishment. The final investment decision of the project is expected to be made no earlier than 2022, and the international business community does not seem to have much enthusiasm for this.
The project itself is very expensive, which means that the cost of natural gas for its end users will be high. In addition, it also brings some political risks, which makes it difficult for investors to provide support. Turkey is a strong regional player, and it believes that the project poses a threat to its territorial claims in the Mediterranean. In addition, it believes that the oil pipeline that bypasses Turkey to connect Israel with Greece through Cyprus and Crete will undermine its status as an energy hub that powers Europe. It has already expressed its opposition to the project and said it will do everything in its power to prevent the completion of the project.
As the prospects for entering the European and Asian markets remain uncertain, Israel has also turned its attention to its neighbors. In 2016-2018, Jordan and Egypt signed agreements to purchase natural gas from Israel’s Leviathan and Tamar gas fields. Although these agreements undoubtedly provide some relief for Israel, they are a relatively small consumer market and they cannot solve Israel’s energy dilemma alone.
In addition to the aforementioned political and business obstacles that hinder Israel from obtaining major export transactions, the major security risks faced by its field also pose problems for its energy ambitions. In recent years, the Israeli authorities have been forced to admit that the country’s oil and gas infrastructure is vulnerable to attacks from the Gaza Strip-as evidenced by the events of the past two weeks.
However, despite numerous difficulties, Israel has not given up its desire to become a major player in the global natural gas trade.
In 2020, Israel, together with Egypt, Greece, Cyprus, Jordan and the Palestinian Authority, established the Eastern Mediterranean Gas Forum (EMGF). Italy and France soon joined the forum and became permanent observers of the United States and the European Union.
Israel is working hard to establish a regional market through the EMGF, in which all participants are committed to cooperation rather than competition in order to increase its chances of finding suitable investors and buyers. In addition, it is limiting Turkey’s ability to hinder its efforts to enter the European market by supporting Egypt’s ambitions to become an alternative natural gas distribution hub in the region.
Despite these efforts, until recently, Israel has made limited progress in achieving its ambitious natural gas extraction and export goals. But Mubadala’s decision in April 2021 to buy the Israeli company Delek Drilling LP’s 22% stake in the Tamar offshore oil field changed all that – and added Israel’s chances of one day becoming a major player in global energy trade. Opportunity.
First of all, Mubadala’s decision to invest in a natural gas field in Israel has sent a signal to leading international oil companies that the geopolitical situation surrounding Israel’s natural gas resources is becoming more conducive to investment and increasing Tel Aviv’s next move. Opportunities for profitable transactions in rounds of exploration and exploration bidding. Development license. At least, it convinces the International Olympic Committee that if they decide to invest in Israel, they will not undermine the powerful and oil-rich Gulf monarchy.
In addition, by inviting Mubadala to become a shareholder of the Tamar oil field, Israel has established a profitable relationship with a very wealthy investor who may also show interest in other Israeli efforts, such as the upcoming Conducted bidding for exploration licenses and its creation of planned LNG plants.
Finally, the United Arab Emirates and Chevron currently operate the Tamar oil field and own 25% of the shares. They are also active investors in Israel’s neighboring countries, especially Egypt. Therefore, Mubadala’s investment in the Tamar oil field can encourage the UAE and Chevron to increase investment in Egypt’s natural gas infrastructure. Market experts are already discussing the possibility of Mubadala and Chevron buying shares in Egypt’s Idku LNG plant.
If this happens, it will be possible to talk about the rapid establishment of a regional LNG production base, and Israel will play the role of a raw material supplier in the region.
In this case, it is easy to understand why Israel will do everything in its power to ensure the successful completion of the deal between Delek Drilling LP and Mubadala. But the UAE also has its own reasons to support this major investment.
What will the UAE gain from this deal?
An important figure in the UAE’s decision-making system, Crown Prince Mohammed bin Zayed of Abu Dhabi (Mohammed bin Zayed) made the decision to invest in the Tamar gas field. This is obviously a political decision, and he is also Mubada. Leader of Mubadala’s board of directors.
On the face of it, Mubadala’s decision to purchase shares in Israel’s Tamar gas field is in line with its long-term strategy to expand its investment portfolio, depending on the growing global interest in natural gas as a “semi-green” fuel.
However, the prospects of Israeli natural gas in foreign markets, including the UAE market, remain unclear. This reduces the security of investment and is economically unattractive. Experts believe that the shares of Delek Drilling LP will be sold to Mubadala at a relatively low price to compensate for the risks caused by uncertainty. Nonetheless, the UAE’s decision to invest in Israeli natural gas fields is not just its overall willingness to expand its natural gas investment portfolio.
First, Mubadala’s investment seeks to secure a place in the UAE where more energy will be discovered in the near future. Such a discovery may one day make the Eastern Mediterranean region an important supplier of energy for the global market. This strategy is not new or proprietary to the UAE. For the same reason, Qatar had previously acquired shares in the Glaucus region of Cyprus.
Second, following the widely publicized normalization agreement between the UAE and Israel last year, the two countries urgently need some evidence to prove the actual progress of their relationship. Israel and the UAE have signed a memorandum of cooperation on renewable energy development cooperation and the use of Israeli infrastructure for the transportation of oil and petrochemical resources, but these agreements have not yet provided any tangible results. In turn, Mubadala’s deal with Delek can be used as an indisputable proof that normalization has provided substantial benefits for the two countries.
Third, by strengthening cooperation with Israel in the field of natural gas, the UAE has joined a loose group of countries that can be cautiously called “anti-Turkish” in nature. These countries are also eager to challenge the interests of Turkey’s ally Qatar in the natural gas market. As a result, some analysts put Mubadala’s decision to invest in the Tamar gas field as an effort by the UAE to cooperate more closely with Israel and therefore with the EMGF in response to Ankara’s influence on Libya. growth of. However, it is uncertain whether Emirates will transform the EMGF into a more political and clear anti-Turkish organization. For example, when the Palestinian Authority vetoed the UAE to join the EMGF in March 2021, Israel did not show much frustration. The Israeli authorities may not want to anger Ankara, because Israel still needs to pass through Turkish territory to use some oil.
Finally, it is still unclear whether the UAE can achieve everything it originally intended by investing in Israeli gas fields. However, it is clear that the economic and political benefits that can be brought by this investment are large enough that the continued escalation of violence in the region will not prevent it from completing the transaction. Under this circumstance, Mubadala’s entry into the Tamar gas field and its expansion into Israel’s energy sector can be considered feasible.
The views expressed in this article are those of the author and do not necessarily reflect Al Jazeera’s editorial stance.
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