Israel: Energy Security, Keeping Investors Interested a Major Challenge
Hundreds of Israelis have been demonstrating over the past week outside the home of Energy Minister Silvan Shalom against his plan to export natural gas found offshore Israel. In late 2011, a committee headed by Shaul Tzemach, the former director general of the Water and Energy Ministry, was appointed to head an interministerial committee to study how best to use Israel’s new-found natural gas wealth. The committee included members of the Finance, Environment, Economics, Defense, and other ministries.
The Tzemach committee reached its final recommendation to keep enough gas to satisfy Israel’s domestic demand for 25 years (which amounts to approximately 33.5 tcf - 47% of the total gas). The gas will be used for electricity production, transport and industry while the remaining 53% will be allocated to export. Gas exports would be approximately equivalent in size to what is preserved for national use. Next week, the government is expected to take a final decision on the proportion of natural gas to be exported.
Israel has enough offshore gas to ensure its energy independence and transform it into a net exporter of gas. The Leviathan is the biggest field found to date off the shores of Israel, containing according to Noble’s updated estimation 19 Tcf of natural gas worth billions of dollars. Noble Energy announced last month another natural gas discovery at the Karish prospect offshore Israel. The Karish well is located approximately 20 miles northeast of the Tamar field and is said to contain between 1.6 and 2.0 Tcf with a gross mean of 1.8 Tcf. According to Noble, the Karish discovery is the fifth discovered field with an estimated gross mean resource size of over 1 Tcf. With the addition of Karish and the recent increase in resource estimates at Tamar and Leviathan, total discovered gross mean resources in the Levant Basin are now estimated to be approximately 38 Tcf.
The demonstrators request that any decision to export gas be made following a public, transparent, in-depth discussion by the Knesset rather than as a result of a closed cabinet meeting. They ask for the gas exports to be delayed in time, at least 5 years which would be enough time to reassure the israelis that the gas found off Israel’s shores is used for the service of the country. The demonstrators feel that the cabinet is rushing their decision and that the public would be excluded from the economic benefits of the newly found natural gas. They want to make sure that Israel will preserve a big part of the profits to benefit all israelis and the public good.
Following the protests, Shalom announced that the export quota is likely to be reconsidered and reduced to 40% from the 53% recommended by Tzemach. The danger of a reduction in the proportion of gas to be exported is deterring potential investors. Securing national consumption while maintaining the incentive for investors to develop and search for offshore fields is a delicate equilibrium that needs to be established. Delays in Israel setting out its natural gas export policy, and uncertainty over its content, have placed a question mark over Woodside purchasing 30 percent stake in the project. This example highlights the need for Israel to finalise its export policy.
It is not only about that, says CEO of Delek Group Yitzchak Tshuva, but also about the money that could be brought by selling the gas: around $100 billion over the course of 20 years (from direct taxes and payments based on royalties from sales and investments). All eyes will be on Israel until it formulates its final export policy. Balancing the country’s long-term energy security while keeping investors interested will prove more challenging than originally thought.
Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean.
Follow Karen on Twitter: @karenayat