New Finds of Energy in the Eastern Mediterranean: Cause for Conflict or Cooperation?

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2 The Geopolitics of Energy Project Second Annual Case Competition New Finds of Energy in the Eastern Mediterranean: Cause for Conflict or Cooperation? Harvard Kennedy School of Government April 8, 2012 Prepared by: Nikhil Gahlawat, MPP Candidate 2013 Nathan Haft, MPP Candidate 2012 Julian Lopez, MPP Candidate 2013 Under the supervision of: Professor Meghan L. O Sullivan Director of the Geopolitics of Energy Project

3 A High Stakes Phone Call In a quiet office tucked away on the 4th floor of the State Department s Foggy Bottom building, you sit at your desk in quiet contemplation over the phone call you have just received. It is the morning of April 1 st, 2013, but the call from Secretary of State Hillary Clinton was no April fool s joke. An enormous new gas field had recently been discovered beneath the floor bed of the Eastern Mediterranean by a joint U.S.-Israeli venture. Yet the news from your phone call is precisely as you have feared it has been determined that the field extends beyond Israeli waters and into the disputed maritime zone it shares with Lebanon, as well as into Cyprus waters. The discovery appropriately named the Goliath field could supply enough gas to satisfy demand in Israel, Lebanon and Cyprus for a hundred years. Yet you know nothing will be that simple. The Eastern Mediterranean has been wrought with energy-related disputes, including those over maritime borders and drilling rights. Political tensions such as the division of Cyprus, military conflict between Israel and Lebanon, and recent growing tensions between Turkey and Israel complicate the situation further. The discovery would have been a simple matter had it remained squarely within Israeli waters, much like a series of previous natural gas discoveries there in recent years; but now things are much more complicated. Lebanon claims the territory where part of the gas field sits and is insisting that no drilling begin until its maritime dispute with Israel is resolved. Hezbollah, whose military and political clout within Lebanon has grown in recent years, has threatened to protect Lebanon s maritime assets through all means necessary. You know that another Israeli- Hezbollah conflict, such as their land war in 2006, could be disastrous. This time, targets could include commercial assets of the American company that discovered Goliath, Noble Energy a thought that makes you shudder. Cyprus too is laying claim to part of the field, up to a quarter of which may extend into Cypriot waters. The Cypriot Foreign Minister has told Secretary Clinton that Cyprus would like to begin further exploration in the area as soon as possible, and has requested U.S. assistance in restraining Turkey. You are concerned about the reaction of Turkey, which does not officially recognize Cyprus as a state, and is the only country to recognize the Turkish Republic of Northern Cyprus (TRNC). Turkey has made clear that it views any development of the field as illegitimate until the political division of Cyprus is resolved. Nevertheless, you know that in the past few years Turkey has proceeded to explore for oil and gas off of TRNC waters, often accompanied by Turkish sea and air military forces. In 2011, Israel, which now has close a relationship with Cyprus, buzzed F-15s over a Turkish exploratory ship off the coast of Cyprus. 1

4 Turkey responded by sending F-16s of its own to protect the ship. 1 You are deeply concerned with staving off any conflict between Turkey and Israel, two of the U.S. s most important allies in the region. In the past several years, there have been other discoveries of large gas fields off the shores of Israel the Tamar, Leviathan, and the smaller Dalit gas fields which have sparked a renewed interest in explorations across the Eastern Mediterranean. While the Goliath field has the potential to help meet growing regional and world energy demand, its discovery now risks inflaming political, economic and security dynamics in the region. Furthermore, as the State Department s top official for energy in the Middle East, you worry what this dispute will mean for Noble Energy, the American company which discovered the field. Without a resolution that satisfies Israel, Lebanon, Cyprus and Turkey, the likelihood of these energy reserves reaching international markets is highly doubtful. All four countries involved in the dispute have asked the United States for its help, each one with its own interests in mind. Secretary Clinton has instructed you, one of the State Department s key negotiators on energy, to make resolving this potentially disastrous conflict your top priority. She would like you to clearly lay out the interests of the United States in the matter, describe the potential benefits and costs, and recommend near- and long-term strategies for resolving the dispute. Your recommendations should also address the commercial issues of which country or countries have the rights to the gas field, and how drilling should be shared. As you stare out of your window at the early morning rain, you take a big gulp of coffee and begin to work on the difficult task ahead of you. The Goliath Discovery In March 2013, Noble Energy made the largest gas discovery in the history of the company. The Goliath gas field, named after the ancient Biblical giant, is located approximately 100 miles off the coast of Israel and Lebanon, three miles beneath the Mediterranean seabed (Exhibit 1). At the time of discovery, it was the largest natural gas find ever discovered in the Mediterranean. The field contains some 31 trillion cubic feet (TCF) of gas enough to supply Israel, Lebanon and Cyprus gas needs for 100 years. Potential oil reserves are estimated at 850 million barrels. 2 The field is part of the broader Levant Basin, which extends into the Exclusive Economic Zones (EEZs) of Israel, Lebanon, Syria, Cyprus, and the Gaza Strip (Exhibit 2). The Basin spans roughly 83,000 square kilometers (Exhibit 3). The 2010 U.S. Geological Survey estimates it to 1 United Press International. Israeli jets buzz Turkish drill ship. September 30, / 2 The Goliath gas field is a hypothetical field designed for the purposes of this case. All dimensions and figures related to Goliath are also hypothetical. 2

5 contain 122 TcF of undiscovered recoverable gas and 1.7 billion barrels of undiscovered recoverable oil. 3 Noble Energy Noble Energy was under contract with Israel when it discovered the Goliath field in Israel s EEZ. However, the extent of the gas field was soon discovered to be much larger than originally thought. Your recent conversations reveal that Goliath extends into a 330 square mile disputed triangle of EEZ between Israel and Lebanon (Exhibit 1), and that part of the field may extend into Cyprus EEZ Block 9 (Exhibits 4 and 5). Noble was already under contract for commercial exploration rights to Cyprus Block 9 but had not made any significant discoveries within Cypriot waters. Noble s Israeli drilling partners, Delek Drilling and Avner Oil, each hold a 15% stake in the field, with the remaining 70% held by Noble. As the only American entity directly involved in the dispute, Noble Energy is of particular interest to you. After some quick research and a few phone calls, you begin to put pieces of the puzzle into place. Noble is a publicly traded oil and natural gas exploration company headquartered in Houston, Texas. In addition to developments in the Middle East, its primary operations are in the Denver Basin, the Gulf of Mexico, and offshore West Africa. Although it has operations all over the world, Noble s size still pales in comparison to other worldwide energy companies. In 2011, its annual revenues were around $3.7 billion, 4 and its total market capitalization was about $15 billion. 5 By comparison, ExxonMobil has a market capitalization of around $400 billion. 6 It was largely for reasons of its relatively small size that Noble gambled on oil and gas exploration in the waters around Israel to begin with. Given the politics of the region and the potential to upset Arab partners, big oil companies shied away from exploration in this hotly contested region. Meanwhile, Noble Energy pioneered offshore drilling and exploration technology in the Gulf of Mexico that caught the eye of Israeli energy company Delek Group. In 1998, Noble agreed to partner with Delek to explore the waters off the shore of Israel. In the next decade Noble made several finds, but in 2009 Noble announced its first major breakthrough: the discovery of the Tamar gas field. Just one year later Noble announced the discovery of the 3 World Petroleum Resources Project. U.S. Geological Survey Fact Sheet: Assessment of Undiscovered Oil and Gas Reserves of the Levant Basin Province, Eastern Mediterranean. March Noble Energy. Noble Energy Fact Sheet. March ny_profile.pdf 5 CNN. Noble's cause: Can an independent manage Israel's Leviathan? January 20, Yahoo Finance. 3

6 supergiant gas field Leviathan, also within Israel s maritime zone. 7 Each successive gas find has proven larger than the previous with larger problems to boot. Goliath holds the potential to bring in enormous profits for Noble. The 2010 Leviathan discovery increased Noble s total global natural gas production by 15-20%, 8 and Goliath is twice the size of Leviathan. While Noble s relatively small size compared to other energy companies may have helped lead it to these Mediterranean discoveries, it may also bring complications for financing the project. The company will have to coordinate the building of pipelines with production from its other fields in order to ensure adequate cash flow. The direction of these pipelines will depend on which countries ultimately gain rights to the Goliath gas. Once the gas is extracted, reaches its onshore destination, and is processed, it will need to be transported to distribution plants. Given the size of the Goliath field, it is expected that much of the gas will be exported to third countries rather than used for domestic consumption. Transportation is the most costly phase of the natural gas supply chain. There are generally two methods in which natural gas can be transported. The first is by pipeline from processing plants to final destinations through a complex system of intra- and inter-state pipelines. The second method involves converting the gas to Liquefied Natural Gas (LNG) at processing plants where the gas is compressed to 1/600 th its original volume and then transported via ocean tankers to final destinations. LNG transformation is a much more costly endeavor than using pipelines; however, it avoids many of the difficult political implications of using pipelines. Since transportation is the most costly phase of the supply chain, countries that control pipelines enjoy disproportionate control over supply. United Nations Convention on the Law of the Sea The United Nations Convention on the Law of the Sea (UNCLOS) is the international agreement that establishes rules governing use of the world s oceans and seas. It has been ratified by 162 countries and the European Union, and is generally regarded as part of customary international law. UNCLOS established the concept of the Exclusive Economic Zone (EEZ), the maritime area within which a coastal state has sovereign rights to explore and exploit natural resources. The EEZ extends up to 200 nautical miles from the coastal state s shoreline; however, exact maritime borders are often ambiguous and require bilateral negotiation. Other states have the lawful right to use a coastal state s EEZ for freedom of navigation, overflight and laying 7 Wall Street Journal. Big Gas Find Sparks a Frenzy in Israel. December 30, opstories 8 CNN. Noble's cause: Can an independent manage Israel's Leviathan? January 20,

7 submarine cables. UNCLOS requires states themselves to coordinate the development of resources that cross the boundaries of two or more EEZs. As you brush up on UNCLOS and the EEZ, you discover that there is no clear answer to the question of ownership over Goliath, or how to proceed in extracting its significant wealth. To navigate this conflict you ll have to look closely at each nation involved and carefully consider what each one has at stake. Israel The discovery of abundant gas fields in Eastern Mediterranean waters has the potential to transform Israel both economically and politically. Israel is a net energy importer, spending more than 5% of GDP every year on its energy needs. 10 Natural gas accounts for about 11% of primary energy consumption in Israel, and about 26% of electricity generation (Exhibits 7 and 8). 11 Additionally, Israel imports a net of around 200,000 barrels per day of petroleum. 13 According to the World Bank, total energy consumption per capita stands at 2,873 kg of oil equivalent, and electricity consumption is 6,608 kw per capita. These figures are well above their counterparts for Lebanon, Turkey, or Cyprus. 14 Energy demand in Israel has also been growing at a fast, and at times, disconcerting pace an average of 6% a year for the past decade. The nation faces brownouts during peak periods, and loss of any power plant due to unforeseen circumstances could produce serious problems. 15 This leaves the nation precariously dependent on a volatile region. Indeed, Israel already faces real threats to its energy security. In 2005, Israel and Egypt signed an energy sharing agreement to supply Israel with natural gas each year at a discounted price through the Arish-Ashkelon pipeline (Exhibit 9). Since imports began in 2008, Israeli natural gas consumption has risen sharply (Exhibit 10). 16 Until 2008, Israel s natural gas demand was met by domestic production. However, by 2010 the nation imported roughly 88 BcF of natural gas from Egypt, accounting for 10 The Economist. What a gas! November 11, Congressional Research Service. Israel s Offshore Natural Gas Discoveries Enhance its Economic and Energy Outlook. May 4, CIA World Fact Book World Bank figures via Google Public Data. _use_pcap_kg_oe&scale_y=lin&ind_y=false&rdim=region&idim=country:isr:egy:lbn:cyp:tur&ifdim=regio n&tstart= &tend= &hl=en&dl=en&xmax= &xmin= &yMax= &yMin= &mapType=t&icfg 15 Reuters. Israel needs to cut energy demand growth. December 24, Congressional Research Service. Israel s Offshore Natural Gas Discoveries Enhance Its Economic and Energy Outlook. January 31,

8 roughly 40% of Israel s gas consumption that year. 17 But the Arab Spring has ushered in a new era of Egyptian politics one that may not always honor the fragile ties between itself and Israel. Since the overthrow of Hosni Mubarak, the Arish-Ashkelon pipeline has been attacked 13 times. Additionally, Egyptian officials have signaled that they wish to double the price of their natural gas exports. 19 The era of favorable gas prices for Israel may soon be coming to an end. New gas field discoveries could greatly stabilize Israel s energy situation, and leave plenty to export abroad, producing significant economic benefits. Israel possesses the infrastructure to refine and process 100% of domestic demand for imported oil and gas. The Tamar gas field, discovered in 2009, holds up to 9 TcF of natural gas and is set to come online some time in The Leviathan gas field (16 TcF) will also come online soon. Israeli officials estimate that even before the discovery of Goliath, revenue from all natural gas reserves would reach up to $130 billion. 20 In comparison, Israel s GDP in 2010 was $224 billion. 21 Israeli energy companies are heavily involved in the exploration and operations of these fields (Exhibit 11). Its principal companies include Delek Drilling, Avner Oil Exploration, and Ratio Oil exploration. In addition to economic benefits, Israel also views the new gas field as an opportunity to project political power in the region through being a source of energy for its neighbors. Energy interdependence could help usher in an era of greater peace by holding together fragile ties in the same way the Arish-Ashkelon pipeline has helped to do between Egypt and Israel. Israel has already taken aggressive measures to ensure the security of its fields. In January of 2012, it deployed missile-laden warships to protect its Tamar, Leviathan and Yam Tethys fields, all of which lie within its EEZ but outside of its territorial waters. Israel places a high priority on naval defenses, and uses fast boats to patrol the coastline with support from integrated coastal and airborne radar and surveillance. The Israeli Navy is seeking to purchase additional patrol ships and radar systems to protect its growing number of oil and gas rigs in the Eastern Mediterranean. It is soon scheduled to receive two new Dolphin-class attack submarines from Germany. Israel s relationship with Lebanon, the main party in dispute of Noble s find, is terse to say the least. The two countries, in fact, have no diplomatic relations and fought a land war as recently 17 The Journal of Energy Security. Turning Off the Egyptian Gas Spigot: Implications for Israel. May 31, Oilprice.com. Egyptian-Israeli Natural Gas Contract Casualty of Arab Spring? March 12, Globes. Israel s gas reserves worth $130b. February 19, CIA World Fact Book. 6

9 as The conflict killed at least 1,200 people, severely damaged Lebanese infrastructure, and displaced approximately one million Lebanese and 500,000 Israelis. 22 Tensions again mounted in 2010, when three Lebanese soldiers and one Israeli commander were killed during a border skirmish. Both sides vowed to protect their borders and retaliate aggressively, regardless of the costs. 23 The Israel-Lebanon land border is defined by a 1949 Armistice, while the maritime border remains disputed by both sides. Israel s relationship with Cyprus is far better. The two nations successfully delineated their EEZ in December of In January of 2012, a defense cooperation pact was signed, reportedly giving Israel approval to operate in Cypriot air space and waters. These agreements have come during a period when Israel s relationship with Turkey has been cooling. Once an important partner for Israel, Turkey has taken steps backwards since the controversial interdiction of Turkish-flagged, Gaza-bound vessels by Israeli commandos in May Turkey has begun increased military patrols in the Eastern Mediterranean, and in response, Israel s Defense Minister Ehud Barak has pledged to strengthen Israel s defense links with Greece. Lebanon With no known fossil fuel resources, rights to Goliath would be of key strategic importance to Lebanon. Approximately 95% of Lebanon s energy needs are met with imports of petroleum products, which consisted of 79,000 barrels per day in Lebanon is connected to the Arab Gas Pipeline, which is part of the same network as the Arish-Ashkelon pipeline. The portion of the network extending into Lebanon was completed in 2009, with an agreement to supply Lebanon with 32 million cubic feet (McF) per day. However this promise has gone mostly unfulfilled. Lebanon currently imports only a small amount of gas from Syria. 25 According to the Lebanese Embassy in Washington D.C., the country imports approximately megawatts of electricity semi-annually from Syria, and boasts relatively modest hydroelectric resources. 26 However, Syria s instability, along with growing international sanctions, could easily jeopardize Lebanon s access to Syrian electricity. The state-owned Electricité du Liban dominates the Lebanese energy sector. In June of 2009, the Lebanese Department of Energy and Water struck a gas supply deal with Egypt of some Middle East Crisis: Facts and Figures. BBC News. August 31, The Sydney Morning Herald. Israel and Lebanon on alert after clash. August 5, CIA World Fact Book Journal of Energy Security. Energy Infrastructure as a Diplomatic Tool: The Arab Gas Pipeline. December 14, Embassy of Lebanon, Washington DC. Profile of Lebanon

10 BcF of gas each year. Given that nearly all of the country s power stations currently operate on fuel oil, a conversion in power plants to natural gas from oil represents huge potential savings for the country. Such a conversion would significantly reduce production costs in the industrial sector and could reduce household heating costs by half. 27 Recent political instability in Egypt, however, has made imports from Egypt increasingly unreliable. Additionally, Egypt s own demand for electricity is expected to double by 2025, and fossil fuel reserves are already beginning to mature, leaving in doubt Egypt s reliability as a long-term supplier of gas to Lebanon. 28 Petroleum Geo-Services (PGS), a Norwegian company which provides geophysical services, has performed 3D mapping off the Lebanese coast and has asserted that it has valuable information regarding potential offshore gas reserves (Exhibit 12). Lebanese energy expert, Roudi Baoroudi, claims that Lebanon s EEZ may contain up to 122 TcF of natural gas. However, to date, there are no proved natural gas reserves apart from Goliath. 30 Government officials have expressed a strong desire to conduct exploratory drilling off the coastline, but the country lacks the capability to do so. Their lack of fossil fuel resources compared to other countries in the region has ill-prepared them to explore and produce any new finds. Lebanon has no indigenous exploration and production capabilities no national oil company, and no Lebanese oil and gas companies. The 2011 collapse of the Lebanese Unity Government continues to impede any potential long-term development of its energy sector. In August 2010, Lebanon submitted to the United Nations its opinion and supporting facts of where the exclusive economic zone should be marked. In dispute is a triangle-shaped area consisting of over 330 square miles, wedged between the Israeli and Lebanese maritime border. In November 2010, Lebanon submitted its version of its western border, with Cyprus. However, Israel claims that the proposed maritime borders infringe on Israel's special economic zone. Lebanon maintains that no company should operate near the disputed border with Israel until the matter is fully resolved by the UN. Hezbollah is also an important part of any future development of Lebanon s energy resources. Hezbollah, a Shi a Muslim militant group classified as a terrorist organization by the United States, has grown to include a political party, radio and television stations, and social programs. By 2012, Hezbollah sat two ministers in the Lebanese cabinet and controlled 12 of the 128 seats of parliament. In addition to its political influence, the organization represents a military threat to any potential dispute with Israel. Hezbollah fighters not the Lebanese Army were the main 27 First for Sustainability. Lebanon Sustainability Backgrounder Oxford Business Group. Egypt: Meeting Energy Demand. February 23, CIA World Fact Book. 8

11 belligerents along with Israel in the 2006 Israel-Lebanon conflict. The group stated in late 2010 that it would not allow Israel to plunder Lebanon s maritime assets. 31 Long suspected of receiving weapons and missiles from Iran and Syria, Hezbollah is thought to have an arsenal of 33,000 rockets. Although its missiles are of varying accuracy, they could potentially reach gas rigs off the coast of Israel (Exhibit 13). Hezbollah is also reported to have midget submarines, armed private planes, and exploding boats, all of which could threaten potential targets in the Eastern Mediterranean. Cyprus The island of Cyprus has been divided between Turkish and Greek Cypriots since 1974 the result of a Turkish invasion of the island after a failed, Athens-sponsored military coup. In 1983, the northern Turkish-held area roughly 37% of the island declared itself the Turkish Republic of Northern Cyprus (TRNC). To date, Turkey is the only country that recognizes the TRNC government; all other countries recognize the Republic of Cyprus (ROC) as Cyprus proper. Turkey's 1974 takeover of northern Cyprus remains internationally contested and a source of tension between northern and southern Cyprus. In 1983, Turkish Cypriots declared independence from the rest of Cyprus. The United Nations, under various Secretary-Generals, has since made several attempts to resolve this conflict, all to no avail. In 1984, a bi-zonal, bi-communal, nonaligned federation was proposed, but talks collapsed. Talks resumed four years later, but collapsed again when Cyprus applied for membership to the European Community. Cyprus was admitted to the EU as a member state in Cyprus held the Presidency of the Council of the European Union from July to December of Time and again, attempts to resolve the conflict have fallen apart, many times due to exogenous events. You wonder if it is at all possible that this exogenous shock the discovery of enormous gas fields in disputed waters could actually serve as an impetus for talks, rather than their collapse. In an attempt to codify its right to resources and to enhance its legal and diplomatic stature in the Eastern Mediterranean, Cyprus began signing maritime border agreements with Egypt, Lebanon and Israel beginning in Cyprus agreement with Israel is thought to secure Israel's economic interests in the Mediterranean without jeopardizing a similar agreement signed with Lebanon, which is still awaiting ratification in Lebanon s parliament. Cyprus traditionally imports oil and natural gas to meet its energy needs. The discovery of a significant natural gas deposit at the Aphrodite field in the Block 12 concession, also by Noble Energy, could substantially ease strain on the Cypriot economy. In February of 2012, Cyprus opened concession blocks 1-11 and 13 for commercial exploration licenses. While the Goliath 31 United Press International. Israel tightens Med defense links over gas. January 11,

12 field was discovered by one of Cyprus corporate hires Noble Energy the discovery did not originate in Cypriot waters. Nevertheless, Noble Energy now believes that up to a quarter of the field could extend into Cyprus concession Block 9. To this end, Cypriot leaders have met with Israeli Prime Minister Benjamin Netanyahu to discuss issues of energy cooperation and the development of joint energy infrastructure, such as LNG plants. However, the warming relations between Israel and Cyprus have provoked the ire of Turkey and may soon lead to an international crisis, an outcome you desperately want to avoid. Turkey and the Turkish Republic of Northern Cyprus Turkey views all Cypriot-negotiated maritime border agreements as invalid, and maintains that no drilling should take place in the region until Turkish and Greek Cypriots settle on disputed maritime boundaries. Likewise, Turkey is advocating that any profit from oil and gas drilling should benefit the whole of Cyprus. Cyprus maintains that it has the legal right to explore for gas and enjoys the backing of the international community. Currently, Turkey has no maritime border agreements in the Mediterranean and has not signed the UNCLOS. It also is a NATO member, and has the second largest navy among member countries. Though Turkey has oil and natural gas reserves, it imports roughly 90% of its oil and nearly all of its natural gas (see Exhibit 14 for a breakdown of Turkey s total energy supply). Oil imports come primarily from Russia, but also from Saudi Arabia, Libya, Iraq and Syria. But recent oil and gas discoveries in the Black Sea, Eastern Thrace, Gulf of Iskenderun, and near its borders with Syria and Iraq have provided Turkey with more domestic sources of energy. Likewise, there may be significant oil reserves under the Aegean Sea, though an ongoing territorial dispute with Greece prevents exploration. Turkey acts as a key transit hub between major oil-producers and consumer markets in Europe approximately 2.9 million barrels per day flowed through the Bosporus Straits in The Kirkuk-Ceyhan and Baku-Tbilisi-Ceyhan pipelines together have a capacity of 2.75 million barrels per day (bbl/d) of oil. The government has plans to construct a Samsun-Ceyhan pipeline with a capacity of one million bbl/d. In total, Turkish natural gas pipelines have a capacity to ship up to 3.6 TcF of gas per year. Thus, Turkey will be a critical component of any westward exportation of Goliath gas that Israel, Lebanon and Cyprus plan. While exporting the gas via LNG tankers could potentially avoid some of the political difficulties involved in piping through Turkish territory, such a plan would be significantly more expensive. The United States You find your country stuck in a precarious position. Turkish support in Iraq and Afghanistan, as well as shared common goals during the Arab Spring, underscore the importance of the U.S.- Turkey relationship. Ties have been strengthened after Turkey accepted deployment of a NATO missile defense shield aimed at containing the Iranian threat and Turkey agreed to curtail its 10

13 importation of Iranian oil in the international effort to pressure Tehran to adhere to IAEA demands on the nuclear front. Likewise, U.S. relations with Cyprus are amicable. The United States and Cyprus maintain trade relations, and both are interested in expanding energy cooperation given the discoveries of the last several years. Indeed, Noble Energy has already reached agreements with Cyprus and is drilling on its behalf. In Lebanon, the U.S. continues to support the strengthening of democratic institutions, while containing threats from Hezbollah. In recent years, the United States has increased its military support for the Lebanese Armed Forces and Internal Security Forces, and has provided increasing amounts of economic aid. Lastly, relations with the U.S. s long-standing ally, Israel, remain unshakable, according to the White House. You recognize that the United States government finds it in its strategic interest to promote regional stability between Israel, Lebanon, Cyprus and Turkey. The U.S. would also hope to facilitate open access to the Goliath field for Noble Energy, an American company, and its partners. Securing the free flow of energy resources to international markets is important to United States foreign policy as well. Finally, the U.S. is interested in the promotion of peaceful resolutions to disputes under international law. Typically, the U.S. has not taken a position on land or maritime border disputes between the parties in question, often suggesting diplomacy through the United Nations. However, given the stakes at hand of the Goliath discovery, Secretary Clinton has asked you to find a way forward in this dispute. Assignment and Guidelines Your task, as the State Department s lead official on energy in the Middle East, is to write a fourpage memo to Secretary Clinton outlining your proposal for resolution of the Goliath gas field dispute. The proposal should include, but is not limited to, the following key points: (i) (ii) (iii) A clear identification of U.S. interests and how they could be either advanced or threatened by the situation; A proposal for short-term action to calm the parties involved; and The formulation of a solution that the U.S. can put forward as a starting point for negotiations between the four parties (Turkey, Cyprus, Israel and Lebanon) and companies. This proposal must address both geopolitical concerns, as well as the commercial concerns of drilling rights and cooperation. You may wish to draw on how other disputed finds have (or have not) been handled well in other parts of the world. 11

14 Your proposal should make clear the following: Your set of assumptions about the parties final stance; Why you believe all parties will find the solution compelling; and What other inducements/penalties/mechanisms the U.S. or others might employ to bring about a solution. Remember that your audience is an American one, so you must ultimately meet U.S. interests and objectives. When making recommendations, you should think politically, economically and diplomatically. You may wish to highlight assumptions you are making about the international or domestic environment, if they are necessary to understanding your proposed strategy. Remember that the Goliath field discovery is a hypothetical, albeit realistic, scenario. You may need to and are encouraged to go beyond the information provided in the case. A few additional resources are noted at the end to help you get started. Please note the following guidelines: You have until 5:00 p.m. on Sunday, April 15 th to solve the case. You should your four-page memo (details below) to HKSenergycomp2012@gmail.com by that time. NO MEMOS WILL BE ACCEPTED AFTER 5:00 p.m. Memos should be no longer than four pages, single spaced, with 1 margins, and 12 point, Times New Roman font. The names of team members should NOT be included anywhere on your memo (so that all memos can be judged on a blind basis). Please use the team number that you were assigned in your submission. If you are unsure of your team number please HKSenergycomp2012@gmail.com. The format (in terms of sections and information conveyed) is up to you, but make decisions with the aim of communicating your strategy and recommendations most effectively. Do not feel compelled to write all prose and use bullets as you see fit. You want to communicate as quickly and cleanly as possible. All references from outside sources should be cited according to Harvard University s academic code (and can be presented as endnotes, so they do not count toward your page limit). Appendices with endnotes, charts, graphs, and maps are allowed and will not count towards the page limit. Any deviations from these guidelines will result in automatic disqualification. Finalists will be notified by Wednesday, April 18 th. If selected as a finalist, you will be asked to submit a PowerPoint briefing to HKSenergycomp2012@gmail.com by 9:00 a.m. on Thursday, April 19 th. NO BRIEFS WILL BE ACCEPTED AFTER 9:00 a.m. If selected as a finalist, your 12

15 team should be prepared to present your proposed strategy to the panel of judges on April 19 th, during the window of 3:00 p.m. to 5:00 p.m. in Nye A&B at Harvard s Kennedy School. You should anticipate having approximately 20 minutes to present your brief and answer questions. The judges will convene separately for their deliberations and return at 6:00 p.m. for the final reception, during which time the winning team will be announced. Again, many thanks for your participation. We look forward to your memos and presentations. Thank you, and good luck! 13

16 Additional Sources Centre for Global Energy Studies Delek Group Economist Intelligence Unit (access available through the HKS library>e-resources) Noble Energy Platts U.S. Energy Information Administration, North Africa and the Middle East 14

17 Appendix Exhibit 1 Goliath Exhibit 2: Limitations of the Exclusive Economic Zones in the Eastern Mediterranean Source: 15

18 Exhibit 3: The Levant Basin Source: U.S. Geological Survey. World Petroleum Resources Project. Fact Sheet March 2010, Exhibit 4 16

19 Exhibit 5 Goliath Source: Cyprus News Report. Exhibit 6 Source: Noble Energy, Inc. 17

20 Exhibit 7 Exhibit 8 18

21 Exhibit 9 Source: Natural Gas and Israel s Future 2009, Israeli Ministry of National Infrastructures 19

22 Exhibit 10 20

23 Exhibit 11 21

24 Exhibit 12 Exhibit 13 Source: BBC News. 22

25 Exhibit 14: Turkey s Energy Supply Source : Exhibit 12 Source: U.S. Energy Information Agency, International Energy Outlook

26 Exhibit 13 Source: U.S. Energy Information Agency, International Energy Outlook 2011 Exhibit 14 24

27 Exhibit 15 Source: U.S. Energy Information Agency, International Energy Outlook 2011 Exhibit 16 Source: U.S. Energy Information Agency, International Energy Outlook

28 Exhibit 17 Source: U.S. Energy Information Agency, International Energy Outlook 2011 Exhibit 18 Source: U.S. Energy Information Agency, International Energy Outlook

29 Exhibit 19 Source: U.S. Energy Information Agency, International Energy Outlook 2011 Exhibit 20 Source: U.S. Energy Information Agency, International Energy Outlook

30 Exhibit 21 Source: U.S. Energy Information Agency, International Energy Outlook