Chevron Increases Its Presence in the Eastern Mediterranean [GGP]
In a press release about its acquisition, Chevron emphasized the importance of Noble’s assets in Israel: “Noble Energy brings low-capital, cash-generating offshore assets in Israel, strengthening Chevron’s position in the Eastern Mediterranean.” Likewise, Noble’s Israeli assets are “[l]arge-scale, producing [an] Eastern Mediterranean position that diversifies Chevron’s portfolio and is expected to generate strong returns and cash flow with low capital requirements.” Chevron’s oil and gas volumes will increase by close to 20 percent through the acquisition of Noble Energy, which also serves as the operator of Israel’s Leviathan and Tamar natural gas fields.
Chevron’s acquisition of Noble also represents a shift among major international oil companies, for which investment in Israel long remained off-limits because they did not want to risk their ties with and investments in the energy-rich Arab states. In recent years, however, most of the Arab Middle East has de facto ended its economic boycott of Israel, and Arab boycotts of third parties that trade with Israel have long gone unenforced. In light of a perceived common threat from Iran, the Arab Gulf states have quietly improved ties with Israel. While it is not clear how long Chevron will hold on to its newly acquired acreage in Israel, the acquisition itself demonstrates how much has changed.
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Chevron’s purchase of Noble gives impetus to the potential for Israel to export its gas via Egypt, since Chevron has exploration licenses there and will obtain additional rights in Egypt held by Noble Energy. Israel has long debated the relative merits of exporting its gas to and via Egypt, Turkey, or Greece. On Sunday, the Israeli government approved an agreement with Greece and Cyprus to build the proposed EastMed pipeline from Israel to Greece via Cyprus. Yet this pipeline is highly unlikely to materialize, as it lost Italian support last year and lacks any commercial commitment to invest in the venture.
The Chevron-Noble deal is the first major oil industry acquisition since the beginning of the pandemic and subsequent crash in oil prices, and there are likely to be additional mergers and acquisitions of oil companies and assets, as is common after a period of low oil prices. This will lead to a continued consolidation of the U.S. oil and gas industry, as small firms such as Noble struggle to cope over time with oil price swings.
Finally, Chevron’s acquisition of Noble represents a vote of confidence that oil and gas prices are likely to rise, including prices for U.S. shale oil and gas production, in which Noble Energy has major holdings. This expectation of rising prices likely reflects Chevron’s anticipation of economic recovery after the current pandemic-related slowdown.
While U.S. policymakers hoped that the Eastern Mediterranean’s newfound gas resources would serve as a factor for peace in the region and for settlement of the Cyprus conflict, the gas discoveries have only raised regional tensions and increased the prospects for conflict.
Washington has already played a constructive role in lowering tensions between Israel and Lebanon over maritime delimitation, so it should expand its peace efforts in the greater Eastern Mediterranean region.
Brenda Shaffer is a senior advisor for energy at the Foundation for Defense of Democracies (FDD), where she also contributes to FDD’s Center on Economic and Financial Power (CEFP). She is also a faculty member of the U.S. Naval Post-Graduate School. For more analysis from Brenda and CEFP, please subscribe HERE. Follow Brenda on Twitter @ProfBShaffer. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.
Originally published by Foundation for Defense of Democracies
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