The deep-water gas fields, discovered in 2009 and 2010, will soon turn Israel into an energy exporter, putting the Jewish state in the enviable but tricky position of trying to sell billions of dollars in surplus gas to neighbors that range from cool to downright hostile.
The questions are: To whom will it sell? And how?
Some Israeli leaders have suggested a “gas for peace” strategy whereby Israel provides gas at competitive rates to neighbors that want to buy.
But they also acknowledge that some Arab countries might refuse gas — at any price — from Israel. For years, many oil-rich Arab nations have declined to directly supply Israel with oil.
“There is an interesting cocktail of possibilities,” said Pinhas Avivi, political director of multilateral, global and strategic affairs at the Israeli Foreign Ministry. “The trick is to use the gas to solve problems, not create new problems.”
The Israeli leadership will soon announce how much future production it will allow companies to export. At the same time, politicians have begun to think about what to do with the billions of dollars that the state will take in royalties and taxes.
Economists are advising that the windfall be stashed in special funds for future pensions or rainy-day needs, as Norway does with its oil wealth, so as not to flood the Israeli economy with gas money. A rapid infusion of petrodollars could inflate the value of the Israeli shekel to the point that it hurts the country’s export competitiveness in other areas — a phenomenon known as “Dutch disease,” which Israel’s central bank says it does not want to catch.
The first major Israeli gas field, called Tamar, began production in March, and natural gas is now flowing from sea to land. Prime Minister Benjamin Netanyahu hailed it as “an important step toward energy independence.”
A far-larger offshore find, appropriately called Leviathan, holds a gas reservoir the area of Las Vegas and is scheduled to go onstream in 2016. When it was discovered in 2010, Leviathan was the world’s largest deep-water discovery in a decade — it held enough gas to meet all of Europe’s needs for a year.
Reversal of fortune
The discoveries represent a twist of fate for a country that until recently relied on imported coal, diesel and heavy fuel oil to generate electricity. Israel has been vulnerable not only to the vagaries of the global energy market but also to attacks on the infrastructure that keep the country running.
Two years ago, Israel was getting 40 percent of its natural gas from Egypt. But in the aftermath of the popular uprising that toppled President Hosni Mubarak, Egypt’s pipeline across the turbulent Sinai Peninsula to Israel was sabotaged by militants more than a dozen times. Last year, Egypt canceled its contract to sell gas to Israel.
Today the section of pipeline that once served Israel and Jordan is empty.
But maybe not for long, some Israeli officials hope.
“We could now envision selling gas to Egypt,” Avivi said. “The pipeline is there. You can simply change the direction the gas flows.”
Rising gas consumption in Egypt, coupled with a steep decline in production, turned the country into a natural gas importer last year. So saboteurs might allow gas to flow, or the Egyptians might guard the pipeline more carefully.
Jordan, which imported 80 percent of its natural gas from Egypt before the pipeline was idled, could connect to Israel at the Dead Sea. Gas also could flow to the Israeli-
occupied Palestinian territories, even to the power-scarce Gaza Strip, to fuel factories or generate electricity.
Energy analysts say they can imagine a scenario in which Israel sells gas to an impoverished Egypt to keep the lights on in Cairo, helping the Islamist-led government there remain in power. Although a longtime peace treaty between Israel and Egypt remains in place, relations have cooled since Mubarak’s overthrow and the rise of the Muslim Brotherhood, which is closely allied with Egyptian President Mohamed Morsi.
Charles Davidson, the chairman of Texas-based Noble Energy, which has taken the lead in developing Israel’s natural gas fields, told reporters last month that Noble and its partners are evaluating several export options for Israeli natural gas, including offshore floating plants to convert the product to liquefied natural gas (LNG), which can be loaded onto tankers and shipped anywhere in the world.
There are as many options as there are challenges.
Offshore platforms or floating LNG plants may be especially vulnerable to attack. Even underwater pipelines are exposed. In March, the Egyptian navy arrested three scuba divers who officials said were trying to cut an undersea Internet cable in the Mediterranean. Israeli media have reported that Israel’s navy is preparing to deploy remotely controlled patrol boats to watch over the country’s offshore gas fields.
While other offshore operations must contend with typhoons and hurricanes, Simon Henderson, a senior fellow at the Washington Institute for Near East Policy and an expert on Middle East energy, said, “in the Middle East, it is some young men with an RPG [rocket-propelled grenade] and a boat.”
Some experts wonder whether Israel’s gas is “diplomatically stranded,” meaning that the resource is there but that it is difficult to get it anywhere.
Israel could export gas via pipeline to southern Europe through Greece — but then it would compete directly with Russia, the gas powerhouse.
“And we don’t need to make new enemies,” said a senior Israeli official, who spoke on the condition of anonymity because of the sensitivity of the subject.
The gas could flow to the divided island of Cyprus in the eastern Mediterranean, which could serve as a regional hub and a potential source for Europe. But any deal with Cyprus might anger Turkey, which claims one-third of the island.
Energy analysts say Turkey, with a booming economy, is a natural market — and maybe a pipeline partner — for Israeli gas.
But first, the two countries need to mend a once-close ties that were severed after a 2010 Israeli raid on a converted Turkish cruise ship that was part of an aid flotilla trying to break Israel’s naval blockade of the Gaza Strip. After encountering violent resistance, Israeli commandos opened fire, killing eight Turks and an American of Turkish descent.
Israel formally apologized for the deaths in March, and the two governments have since begun negotiations to compensate the families of the victims and reestablish diplomatic relations.
According to a report from the intelligence consultant group Stratfor, “the easiest way for Israel to sell the resource abroad would be to build a pipeline running along the coasts of Lebanon and Syria and eventually reaching Turkey. But Lebanon and Syria are openly hostile to the idea. Even if they agreed, neither country has a government stable enough to secure such a project in perpetuity.”
Lebanon, which also has natural gas resources offshore, is charging that gas fields claimed by Israel are in Lebanese territorial waters.
The gas fields are “not going to help solve all our wars and all our territorial conflicts,” said Brenda Shaffer, an energy expert at the University of Haifa in Israel. “But in the sense that this can contribute to the prosperity of our neighbors, it’s a good thing.”