A Palestinian woman sits with her grandchildren in Shati refugee camp in Gaza City

A long-mooted $1bn project to develop natural gasfields off the Gaza Strip is being revived as part of a drive to develop the economy of the Palestinian Territories and reduce its crippling reliance on foreign aid.

Benjamin Netanyahu’s government is “very supportive” of the project, which would see the fields exploited on behalf of the Palestinian Authority by investors led by BG Group, an Israeli government official involved in the deal told the Financial Times.

The fields, which contain about 1tn cubic feet of natural gas – about a third of the UK’s annual consumption of the fuel – would take three to four years to develop, meaning they could be producing gas by 2017. Capital investment in the project would total about $1bn, and it would bring in $6bn to $7bn of revenues a year, some of which would go back into the squeezed Palestinian budget in the form of royalties and taxes and help to defray Ramallah’s chronic fiscal and trade deficits.

A senior Palestinian official said that because of positive signals from Israel’s government, the PA was now negotiating a revised concession agreement with the other investors, BG and Consolidated Contractors Company – an Athens-based, Palestinian-owned construction and engineering group – which he hoped would be finalised “in the coming few days”.

“We have been preparing ourselves, given the positive signals we received from the Israeli side, that they would be willing to make the implementation of this project possible,” said the Palestinian official, who asked not to be named as the deal is not final yet. “We have taken steps to prepare for this, including having serious discussion with BG about the terms of the licence.”

The next step would be to secure the Israeli permits, which could take “a few weeks”, the Palestinian official said.

The Israeli official said the Palestinians still needed to address “some issues on their side”, but added: “If they come to us and they have their side lined up, we can go ahead very quickly.”

A spokesman for BG said the company was “committed to exploring the options whereby a sustainable agreement for the development of the [Gaza Marine] reserves can be found”.

If approved, the revived deal would be the largest yet of several big economic projects being mooted as part of a $4bn plan to lift the Palestinian economy out of its dependency on foreign aid and Israeli energy. The plan includes developing sectors such as power generation, tourism, agriculture and the mining of potash from the Dead Sea. John Kerry, US secretary of state, announced the economic plan in May and Tony Blair, who represents the Middle East Quartet – made up of the US, the EU, the UN and Russia – is overseeing its implementation.

An Israeli-backed deal would dispel some of the scepticism Palestinian and Israeli analysts have expressed about the plan’s chances of success, given the dependence of all Palestinian economic activity on Israeli government goodwill, which has not historically been forthcoming.

For the Palestinians, exploiting the gas reserves would boost their independence in electric power – nearly all of which is imported from Israel – by allowing power station projects in Jenin, Hebron and Gaza to go ahead. Cheaper and more reliable power, in turn, would make new industrial projects in areas such as steel or cement possible.

But veteran observers remain pessimistic that the Gaza gas development will ever materialise. “We’ve had a lot of false dawns with this project,” said one.

BG was originally awarded an exploration licence for the entire area off the coast of Gaza in 1999 and discovered the Gaza Marine 1 and 2 fields the following year. Yasser Arafat lit a flare at the site in a highly-charged ceremony, praising the gas as a “gift from God”. However the project was halted after the outbreak of the second intifada. The then government of Ariel Sharon refused to back it on security grounds, saying there was a danger royalties would be channelled to terror groups.

The political rift between Fatah, which rules the West Bank, and the Islamist group Hamas, which governs Gaza, has also held up progress. In 2007, BG withdrew from talks with Israel over the sale of gas from Gaza Marine and a year later closed its office in Israel.

But in recent months the situation has changed. Israel, which is engaged in peace talks with the Palestinians sponsored by Mr Kerry, has eased some of the tight controls it exercises over the West Bank and Gaza economies.

An energy industry source said that Israel may now see Gaza Marine as providing a useful alternative source of gas, especially at a time when its pipeline imports from Egypt have been disrupted due to unrest in the Sinai peninsula.

Mr Netanyahu’s government faces criticism and a court challenge from opposition politicians over its plans to export up to 40 per cent of natural gas produced from its own, much larger Mediterranean gas reserves. Israel, the industry source said, may feel that gas from Gaza would allow it to reduce its reliance on the consortium led by Noble and Delek Energy now developing Israel’s Tamar and Leviathan offshore gasfields.

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