TEL AVIV — Israel is in advanced negotiations with British Gas to purchase natural gas from underwater fields off the Gaza Strip in a deal that could lead to a $38 million annual windfall for the Palestinian Authority.
The talks are being held despite Israel’s political and financial boycott of the Hamas-led Palestinian unity government over the Islamist-controlled Cabinet’s refusal to forswear violence and recognize Israel.
Officials close to the talks said the negotiations will include a financial mechanism to prevent money from the gas purchase from reaching Palestinian militants.
“We have an interest to bring it, and [British Gas] has interest to sell it. It’s an issue of price,” said a government official who spoke on the condition of anonymity. “Everything else will work itself out.”
During the heyday of the 1993 Oslo peace accords, such an energy deal would have fired hopes that Israeli-Arab economic interdependence could stifle political and religious rancor.
The fact that the talks are going forward today, amid a boycott and cross-border violence in and around Gaza, is an indication of the power of economics over politics.
The anticipated contract for 37 billion cubic meters of gas could be worth $5 billion over a 15-year period, according to an industry source. However, the gas isn’t expected to begin flowing until 2011.
Representatives of British Gas met with representatives of Israel’s Finance and National Infrastructure ministries last week after the Israeli Cabinet approved in April the opening of formal talks on the deal, said a spokeswoman for the infrastructure ministry.
“There is progress in the talks,” said Michael Levy, a spokesman for British Gas in Israel. “We feel that we can finish talks soon.”
After obtaining the rights to develop energy resources off the Gaza shoreline, British Gas in 2000 discovered a commercially viable subterranean field about 20 miles from the coast. Under the concession, the Palestinian Authority gets 12.5 percent of the sales income as royalties.
Israel, which is shifting to natural gas from coal fuels, has taken an interest in the discovery with the goal of diversifying its energy suppliers.
An underwater pipeline from the Sinai Peninsula to a power station in the Israeli city of Ashkelon is expected to begin supplying Israel with Egyptian gas next year — a milestone in building economic ties between Israel and its Arab neighbors.
“It makes political and economic sense to bring the gas from Gaza,” said Amit Mor, an Israeli energy consultant. “Although the gas deal with Egypt is politically and economically important, it is important for Israel not to put all its eggs in one basket.”
Talks with British Gas have been drawn out because of Israeli concerns over how the proceeds would be used. Informal talks on the deal were stopped in 2003 by Prime Minister Ariel Sharon because he feared that the economic boost could help the Palestinian uprising.
Interest in the deal resumed shortly after Prime Minister Ehud Olmert took office last year. Still, right-wing members of Israel’s Cabinet continue to object.
“The proceeds from the gas sales will reach the Hamas and will be used in operations against us,” said Avigdor Lieberman, a far-right member of the Cabinet who voted against talks with British Gas at a Cabinet meeting in April.
“We want to boycott the government, and we ourselves are harming this demand,” he said.
If British Gas and Israel reach an agreement, a pipeline will be constructed from the offshore fields directly to Israeli power plants in Ashkelon.
British Gas is conducting parallel talks with Palestinian officials under President Mahmoud Abbas.
The Palestinian government is split between the secular Fatah movement, led by Mr. Abbas, and the Islamist group Hamas, which controls the parliament and Cabinet.
The government-owned Palestine Investment Fund, which is involved in the talks, lists the gas project as a key “strategic” business project on its Web site, www.pif.ps.
“In addition to injecting large funds into the local economy, development of the gas fields and exporting natural gas will send positive signals about the investment environment in Palestine.”
Hamas, however, has said it is opposed to selling the gas to Israel, questioning whether Israel’s government, which has withheld customs taxes collected on behalf of the Palestinians, would do the same thing with proceeds from the gas sale.
“The Israeli occupation wants to destroy our economy. This is our gas, how are we going to give it to the occupation?” said Hamas spokesman Fawzi Barhoum.
“After they take our gas, they will promise to give our money, but if we make any resistance they will stop giving the money. There is no honesty,” he said.
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