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For National Geographic News

Israel’s northern port city of Haifa has been a crucial energy center for decades; refineries dating back to the British Mandate in this land have long processed the oil sent by pipeline or shipped here from abroad. Today, rigs are working off Haifa’s coast to tap the first major fossil-fuel reserve ever found in Israel’s territory, a store on which it hopes to build a far more independent energy future.

The Tamar natural gas field was discovered in 2009 some 50 miles (80 kilometers) off Haifa’s coast in the Mediterranean Sea. There are perhaps scores of known gas fields bigger than Tamar, with its estimated 250 billion cubic meters (9 trillion cubic feet) in reserves; Alaska’s North Slope, for instance, is believed to hold four times as much fuel. But Tamar is large enough to meet all of Israel’s natural gas requirements for 20 to 30 years, the experts say.

This unprecedented offshore bonanza expanded dramatically the following year when another field, Leviathan, almost double the size of Tamar, was discovered another 30 miles (48 kilometers) to the west. (A smaller field, Tanin, with an estimated 33.9 billion cubic meters (1.2 trillion cubic feet) in natural gas, was discovered nearby earlier this year.)With natural gas scheduled to begin flowing from Tamar next year, and from Leviathan about four years later, Israel is on the brink of a historic shift. Instead of being an energy-scarce nation amid Middle East oil giants, many of them hostile, Israel now faces a future as a fuel producer in its own right—likely as an exporter and supplier to some of its neighbors, a development that could dramatically alter the region’s geopolitics.

Israel’s foreign and domestic policy no longer will be intertwined with the question of securing adequate fuel supply. Now it will face a quite different challenge—managing the nation’s newfound energy abundance.

“This is going to change the overall way of the economy of Israel,” says Shaul Zemach, director general of Israel’s Ministry of Energy and Water Resources. “It’s like a domino—it’s going to have a domino effect on all of the markets.” Quite simply, he said, it’s a “game changer.”

A Timely Discovery

Israel has depended on energy imports since its founding in 1948, and the political conflict between the Jewish state and its Arab neighbors and Iran has been riddled with strife over oil resources. Only during the decade following the 1967 war, when Israel gained control of the Sinai Peninsula’s oil fields, did the nation produce a significant share of its own fuel. When Israel surrendered Sinai as part of its peace treaty with Egypt, it secured assurances both from Egypt and the United States on future energy supply.

An outgrowth of that pact was Egypt’s 2005 agreement to provide natural gas to Israel via pipeline. Two small offshore gas fields in the Mediterranean had begun providing natural gas to Israel in 2004. But within just a few years the conduit from Egypt across the Sinai Desert was providing half of Israel’s gas supply. The risks of such foreign reliance became clear after last year’s ouster of Egypt’s longtime leader Hosni Mubarak. The pipeline has been sabotaged 14 times since the uprising, rendering it essentially unusable. In April, in what was at that point a symbolic gesture, Egypt formally cancelled the deal.

The newfound offshore gas fields of Tamar, Leviathan, and Tanin give Israel a historic chance at energy independence and could transform the region’s geopolitics. Israel may work with Cyprus, which has its own find (shown on map below), on export plans.
(Related Blog Post: “Egypt’s Chaos Stirs Energy Fear in Israel“)

Thanks to the development under way off the coast of Haifa, Prime Minister Benjamin Netanyahu’s response was unruffled: “We have gas reserves that will make Israel totally energy independent, not only from Egypt, but from any other source,” he said.

Like many nations, Israel has been working to increase use of natural gas and reduce its dependence on coal, which now provides about 70 percent of the nation’s power. The new supply from Tamar and Leviathan can aid in the shift to a fuel that can produce electricity with fewer toxic pollutants and half the carbon dioxide emissions of coal. The government also sees potential for natural gas to replace oil as a transportation fuel. And, because it is a key feedstock in the petrochemical business, it is expected to spur new industry.

“If it’s played right, it’s an economic opportunity for Israel, in public health and environmentally,” says Brenda Shaffer, an expert on energy policy and management at the University of Haifa. But she strikes a note of caution, especially because the enormous size of Israel’s energy prize has led, inevitably, to planning for sale of natural gas abroad. “Energy export is always a two-headed sword,” Shaffer says.

Israel, with its developed and diverse economy, need only look to its oil-state neighbors to see the downside of energy export-economies that have become overly dependent on one commodity.

And energy wealth will complicate already tense Middle East relations. Lebanon, which has no agreed-upon maritime (or land) border between Israel, has asked the United Nations to intervene to prevent Israel’s energy drive from encroaching on its undefined territorial waters as it prepares to launch its own offshore energy exploration. Meanwhile, the island Republic of Cyprus, 300 miles (480 kilometers) from Israel’s coastline in the Mediterranean, has its own large natural gas discovery. With Noble Energy, an oil company based in Houston, Texas, a major stakeholder in both the Israel and Cyprus finds, the two nations are in talks on how to coordinate development and potential export. But Turkey, which has de facto control of the northern part of Cyprus and doesn’t recognize the Cypriot government, has begun energy exploration too.

(Related Photos: “Oil States: Are They Stable? Why It Matters” and Blog Post: “Energy Corridors and the Turkish Zeybek Dance“)

Home and Abroad

Perhaps the most complex issues Israel faces have to do with how much natural gas to keep at home, and how much to sell to its neighbors and to energy consumers beyond the Middle East. Natural gas is a difficult fuel to transport, requiring long-term investment in pipelines or extremely expensive infrastructure to super-cool the fuel into liquefied natural gas (LNG) that can be shipped by tanker. That means planning and commitment to export routes across the politically volatile region.

Given Israel’s history of energy scarcity, it is not surprising that many citizens believe the most important imperative is to shore up domestic supply. Schaffer, for example, argues that exporting in large quantities would not be beneficial for Israel, and most of the gas should remain at home, despite what she called the energy companies’ interests in making “a quick buck and moving on to something else.” Selling large volumes of gas to other countries could cause Israeli consumers to pay higher prices for a domestic resource, she says.

For now, the government believes there is plenty of natural gas to go around, and there are geopolitical advantages to energy trade. “We believe that the natural gas that will be available to us will be in quantities sufficient not just for our own needs, but also to provide our neighbors with it if they will be interested,” said Energy and Water Minister Uzi Landau. He referred specifically to the Palestinians and to Jordan, Israel’s eastern neighbor, another Middle Eastern nation that historically has had little in the way of domestic fossil resources. “Cooperating on energy with them will be an additional contribution in the day-to-day contacts we have with them, enhancing the economy of all of us.”

There are also economic reasons to export. Bini Zomer, director of corporate affairs at Noble Energy Mediterranean, explained that as long as the price of natural gas in Israel reflects the market price, “you would always supply the domestic market,” as this is “the closest and easiest market to serve.” He said supplying gas to the Jordanian market would be ideal, but the demand from that neighbor alone pales beside the size of the offshore resources now in Israel’s hands.

“The problem is that in Israel and even some of the potential neighbors, the market is just not big enough to monetize your gas in a way that makes the investment worthwhile,” Zomer says. Since Tamar alone can fulfill Israel’s domestic energy needs for the foreseeable future, he argued that the focus of Leviathan should largely be export.

Leviathan, the largest energy discovery in Noble’s history, opens up a new horizon not only for Israel but for Noble and its consortium partners, especially Israel’s Delek Drilling and its subsidiary, Avner Oil and Gas, which have a majority stake in Leviathan. Neither company has a history of LNG export.

Because of the sky-high expense of building new LNG infrastructure, Shaffer said it might make sense for the firms to make use of an existing LNG terminal in Egypt, which currently runs at only 40 percent of its capacity. By reversing the pipeline that runs from Egypt to Israel, gas could flow southward into the unfilled LNG plant, she explained. Even though at the moment, Egypt has dissolved its natural gas pact with Israel, Shaffer said she could easily see evolution of a new energy-cooperation agreement. “At the end of the day, these commercial issues usually overcome a lot of the politics,” she said.

While energy minister Landau said that he “wouldn’t write . . . off” a new deal with Egypt, he said Israel would need to examine the possibility farther down the line and see if the political situation has improved. “We highly value the natural gas supply agreement we had with Egypt, a supply that was disrupted,” he said.

Gideon Tadmor, chairman of Delek and chief executive of Avner, said the region’s politics necessarily become part of the economic calculations. “If we would’ve been elsewhere in the world, obviously the most efficient thing to do would be to have reverse flow from Israel to Egypt to be liquefied in its facility there,” he said. “But we are not elsewhere. We are in the Middle East, and we are all aware of the challenges of our relationship with Egypt.”

Zomer contends it will be necessary for Israel to build its own LNG facility, the cost of which he said will be driven by the market. To give just one example of how pricey that can be, one company aiming to build a new LNG export terminal on the U.S. Gulf Coast estimates its costs for two production trains will be $4.5 to $5 billion.

Leviathan stakeholders are in the process of seeking out a major new investor to help share the financial burden.

Tadmor touted the idea of working with a shared LNG site on Cyprus, where a location already has been earmarked for such a facility. While admittedly “newcomers to LNG,” Tadmor said, the Israeli-American consortium would like to be LNG innovators, and the partners are conducting preliminary studies on establishing a floating LNG facility that could solve the problem of obtaining land rights.

How Much Is Enough?

Zemach, the energy ministry director-general, is leading an interministerial committee to consider the question of how much natural gas Israel should be exporting to spur development of Leviathan, while maintaining Israel’s own secure supply. “It’s all about balancing the needs of the state for years to come, but at the same time giving the industry economic justification and horizon to continue to explore and develop,” said Tadmor, of Delek and Avner.

The committee issued an interim report in April that proposed requiring the largest sectors of the natural gas fields to provide half of their supplies to the domestic market, while the smaller sectors would be required to sell about one-quarter of their supplies at home. Israel’s Ministry of Environmental Protection has said the domestic shares should be much higher. Noble Energy, on the other hand, objected to the requirements to supply natural gas to the domestic market regardless of economic feasibility or demand, noting that reserving too much for the domestic market would “devalue natural gas opportunities in Israel.”

“Why would the government want to put a policy in place where I couldn’t maximize the price?” said Zomer, of Noble, stressing Israel’s own financial stake (the government’s share in oil and gas revenues, by law adopted last year, are between 52 and 62 percent). “They should want to get an efficient price for their product.”

After weighing public comment, the committee is to issue a final report this summer.

“We want the market to have the government policy in advance, not as we go,” says Zemach. “But what private investors need is the stability. What we are doing is trying to provide them with the certainty and stability of long-term policy of the government.”

Shaffer said it is historic, in any event, that a committee has been formed to carefully consider and advise the government on how to manage the country’s new resources—a process that she said, in all likelihood, will lead to more discoveries. “It’s the beginning of the bonanza,” she said.

Sharon Udasin is the energy and environment correspondent for The Jerusalem Post in Israel.

This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.