Israel and its natural resources
What a gas!
Israel’s new gas finds may affect its strategic friendships too
Nov 11th 2010 | JERUSALEM | from PRINT EDITION
http://www.economist.com/node/17468208/print
THE old, sad, Jewish joke about Moses taking a wrong turn and ending up in a corner of the Middle East without any oil can at last be discarded. Israel has struck gas—lots of it. Deep-sea wells off the north of the country should soon supply all the country’s own gas needs, and much more is in prospect for export. But such bonanzas inevitably bring headaches.
Tension with next-door Lebanon over demarcating the maritime border is rising. A big battle has begun in Israel over royalties, with some demanding a sovereign-wealth fund when the money starts flowing. There is excitement and volatility on the Tel Aviv stock exchange, where the government has moved belatedly to curb heady trading in drilling licences.
The find could also have far-reaching strategic consequences, especially if a pipeline is laid across the seabed to Greece, where relations with Israel have been noticeably warming as Turkey moves to shut down its longstanding alliance with the Jewish state.
For decades Israel drilled for oil with scant success. But in 1999 a maritime drill struck gas in commercial quantities just 250 metres beneath the Mediterranean, 40km (25 miles) out from Israel’s southern port of Ashdod. Production began in 2004 at what is called the Mari-B, and some 2.8 billion cubic metres of gas are piped ashore each year from reserves that may be as large as 22 bcm.
But that is a mere bubble compared with the Tamar field discovered last year, also in the Mediterranean, 90km off the northern end of Israel’s coast. Tamar, where the gas is much deeper down, holds 238 bcm. Production, by a consortium led by the same Israeli and American partners who own Mari-B, is to begin in 2014. Tamar was the world’s largest gas find in 2009.
But it, too, may be dwarfed by another find by the same consortium, 45km farther out to sea. Noble Energy, the consortium’s American part, says this field, called Leviathan, has a potential of 453 bcm and an even chance of “geological success”. An exploratory drill is under way. The results should be known early next year. If good, production could begin by 2016.
The two fields could provide gas worth $4 billion a year. As Israel’s energy bill is $10 billion—more than 5% of GDP—the gas would sharply improve the country’s trade balance. Indeed, Tamar should supply all Israel’s domestic gas needs, both for industry and household consumers, for at least 20 years. Leviathan’s reserves should be available for export.
This is where Greece may come in. The two countries, cold and distant in the past, have suddenly become bosom friends. Israeli military aircraft, no longer welcome in Turkish skies, are training over Greece in concert with the Greek air force. The two prime ministers, Binyamin Netanyahu, an arch-capitalist, and George Papandreou, a socialist scion, have exchanged cosy visits. Israeli businessmen and tourists who once flocked to Turkey are switching to Greece. Recent diplomatic talks in Jerusalem included a session with Israel’s petroleum commissioner. Israel sees Greece not only as a gas purchaser but also as a European hub from which Israeli gas could be sold and piped on.
But Greece may not sign on the dotted line until Israel has agreed with Lebanon and Cyprus on where a border is to be drawn in the sea, demarcating each country’s economic exclusion zone. Israeli and Lebanese ministers have already traded accusations and threats. Tension has risen since Iran began offering to help develop Lebanon’s share of the undersea wealth.
The Israelis say they are close to agreeing with Cyprus on a “median line” to let them share some of the seabed between them; as economic exclusion zones generally extend 200 miles (322km) out to sea, there is an overlap. The Israelis then intend gingerly to approach Lebanon, though the two countries are formally in a state of war, in the hope eventually of holding a UN-backed international arbitration.
Meanwhile, the Israelis have run a string of buoys into the sea off the coastal border point between Israel and Lebanon. But the Lebanese say they are angled too far northward. The Israelis point out that Tamar and Leviathan (see map) are anyway well south of the line that Lebanon claims as the correct maritime one.
In any event, unlike Mari-B, where a derrick standing on the sea floor pumps up the oil, Tamar and Leviathan will present no target above the waterline for anti-Israeli guerrillas from outfits such as Hizbullah, the Lebanese Shia party-cum-militia. Nearly 2,000 metres deep, the wells will be installed and operated by robot-like machines capable of withstanding the intense underwater pressure.
The Palestinians, especially in Gaza, are watching developments twitchily. A decade or so ago, British Gas wanted to work with the Palestinian Authority to develop the Marine field off Gaza; most or all of the gas was to be sold to Israel. But Ariel Sharon, when he was Israel’s prime minister, vetoed the project, ostensibly on security grounds, and the field lies unexploited.
A big bonus for poor Israelis?
Back on land, a committee of experts appointed by the finance minister has recommended a steep rise in the government take on successful gas or oil finds. A series of tax breaks and low royalties would mean, the committee found, that Israeli citizens would do poorly out of their country’s natural resources by international standards. So the committee proposed progressive taxes on profits that could mean the government taking 66% of profits on flourishing gasfields. Oil and gas executives, apparently backed by the American administration, are complaining loudly. The offshore consortium has retained legions of lobbyists and public-relations people to make its case.
Lined up against them are civil-society campaigners such as Michael Melchior, who hailed the recommendations as “a significant step in the right direction”. As a former chief rabbi of Norway and later an Israeli politician linked to the Labour party, he is urging the government to follow Norway’s example by putting the state’s share of profits into a sovereign wealth fund and earmarking the income for social welfare. “A one-time chance,” he says, “to bring truly historic change to Israeli society.”