By: David M. Weinberg
Jul 17, 2015
If handled correctly, Israel’s natural gas riches can be an exceedingly valuable tool of Israeli foreign and defense policy. If Israel botches the natural gas bonanza because of extreme over-regulation and confused policymaking, the long-term cost to Israel will dwarf the damage that ten thousand BDS campaigns could inflict.
President Barack Obama’s acquiescence in the long-term legitimacy of Iran’s nuclear infrastructure, along with shameless self-deception in calling Iran’s nuclear activities “peaceful” (sic), amount to a horrible hechsher for a soon-enough-to-be Iranian nuclear bomb.
Obama hasn’t helped the threat go away. He has made the threat from Iran – the greatest threat to Israel’s national security – more acute than ever.
However, this week I discovered another terrible threat to Israel’s national security: The ruinous handling of Israel’s vast natural gas deposits in the Mediterranean.
The 1,400 billion cubic meters (bcm) of natural gas that lie offshore in the Tamar, Leviathan, Tanin and Karish fields constitute one of Israel’s most important geo-political assets for the future. The gas fields are of critical strategic value. Potentially, they can help revolutionize Israel’s standing in the region and transform our relations with neighboring countries.
If handled correctly, the natural gas riches will soon make Israel not only energy self-sufficient but a net energy exporter. If handled wisely, these exports can be an exceedingly valuable tool of Israeli foreign and defense policy. If handled shrewdly, Israel can solidify its centrality in the region via stable regional partnerships for gas production and supply.
Alas, there are many “ifs” here, and so far it seems that Israeli is mangling the gas bonanza. I fear that we are creating a regulatory and public environment that will scare away most potential investors. And without very big investors, the gas will remain buried uselessly underwater and underground; or it will be so expensive as to be unattractive and ineffectual.
Specifically, the gas project is being undermined by a hysterical, socialist “anti-tycoon” campaign that is washing over this country. By quibbling with Noble Energy/Delek Ltd. and their partners over several profit percentage points, those opposing Prime Minister Netanyahu’s natural gas plan could bring the whole project crashing down.
A BIT OF BACKGROUND is necessary. Between 2003 and 2009, Noble Energy, alone among the major offshore drilling companies of the world, responded positively to an Israeli government invitation to search for natural gas in Israel’s territorial waters and exclusive economic zone.
Noble discovered the Tamar field with 281 bcm of gas in 2009, and the Leviathan field with 621 bcm of gas in 2010. It invested $200 million in discovering Tamar (taking a 70% chance of failure), and it has invested a whopping $4 billion to develop the larger and much farther-offshore Leviathan field. (The smaller Tanin and Karish fields were discovered in 2012 and 2013).
Now consider this: In 2003, Israel utilized no natural gas whatsoever. From 2004-2011, we purchased about 20% of our energy needs from Egyptian gas fields in the Sinai, until militants blew up the gas lines. The Israel Electric Company was then forced to overspend in 2011-2013 by almost $4 billion to purchase imported oil to make up the extreme shortfall in energy, until the Tamar field came online. Today, 40% of Israel’s electricity production is fueled by natural gas from Tamar.
The complications began with environmental groups that blocked construction of a main natural gas receiving facility near Furadis and forcing its relocation; delays that cost Noble $1.8 billion, and cost the State of Israel much more (including the expensive oil imports mentioned above).
Then the Israeli government changed the rules of the game in terms of taxation and profit-sharing on the gas sector, via a Finance Ministry committee head by Eitan Sheshinsky.
That is when the global gas giant Woodside of Australia withdrew its interest in partnering with Israel or with Noble to develop our gas deposits. Israel is an unstable regulatory environment, the company said.
Under growing public pressure to wrest an even “better” deal, the government now has re-negotiated the terms of business again with Noble, for a 60% government; 40% company split of the profits. Noble would still have to pay the multi-billion-dollar development costs, and the heightened insurance costs (in a situation where Iranian hegemony is on the ascendance alongside Iranian threats against Israel’s gas facilities at sea).
Yet even the most recent iteration of the government-corporate partnership is unacceptable to critics on the left-wing of the political spectrum. They want to cap the amount of gas that can be exported to low levels, and cap the price of gas to Israelis at even more ridiculously low levels. This would nearly-nationalize the gas fields and make the venture far from viable. It is not at all certain that if the critics crash the current deal on the table, Israel’s natural gas fields ever will produce the financial windfalls that everybody is expecting.
BUT THESE IMPORTANT cost-profit, public-corporate disputes are not my main concern. At stake is not just the price of gas for Israelis and the level of profits that Israel’s newly-established sovereign wealth fund will benefit from.
What is of even greater importance is international perceptions of Israel as a stable business environment. At stake is Israel’s global reputation as a reliable place to make money. Without that, foreign direct investment (FDI) in Israel will crash. And in fact, FDI was down over 40% in 2014!
Investors are scared away from places afflicted by extreme over-regulation, confused policy-making, constantly-changing tax rules, and splenetic politicians.
Should the giant global technology companies begin to shy away from Israel because of the way in which we are screwing-up management of our natural gas sector, the long-term cost to our economy and strategic position will dwarf the damage that ten thousand BDS campaigns could cause!
Furthermore, if this country continues to muck around in internal disputes over the gas sector, Israel will fritter way the diplomatic and strategic opportunities offered by the gas finds.
At a Begin-Sadat Center for Strategic Studies conference this week, experts such as former national security advisor Maj. Gen. (res.) Yaakov Amidror and former Navy commander Rear Admiral Eliezer “Chiney” Marom told participants that gas must be considered a fundamental security issue. Israel already has agreements to sell Jordan enough gas for almost all of its electricity production; a diplomatic coup that helps solidify a vital security partnership with the Hashemite Kingdom.
Cyprus wants to partner with Israel in selling massive amounts of gas to the Egyptians; something that would help stabilize the Sisi regime. Greece, and even Turkey, want Israeli natural gas pipelines or liquid natural gas shipments to run through their countries. Russia’s national giant, Gazprom, was in Israel this week too, seeking partnership with Israel.
In other words, Israel’s natural gas sector presents a unique opportunity for partnership between local and foreign companies, between government and the corporate sector, between Israel and its Arab and Mediterranean neighbors, between Israel and Europe, and even between Israel and Asia. Natural gas can be an Israeli strategic geopolitical tool of the highest order.
But not if Israel acts with inconsistency, confusion, short-sidedness and spitefulness.
It is time to protect this country’s gas treasures – both from ruthless Iranian terrorists, and from rancorous Israeli bureaucrats and politicians.