Striking it Rich: Israeli Energy Policy (Part Three)

Cyprus' Aphrodite Gas Field

Cyprus’ Aphrodite Gas Field

By Jonathan Kamel

Photograph of Aphrodite Gas field courtesy of Association of Balkan News Agencies

Note: This article is the final installment of a Three Part series analyzing Israeli energy policy. You can find Part One and Part Two here.

Despite a recent increase in production, the Israeli gas industry faces political challenges. A question remains whether Israel can find enough buyers for its resources or if energy will become “diplomatically trapped” as experts have coined it. Israel must navigate a Middle East geopolitical climate that is full of opportunities, yet also tremendous risks. The reserves found off the coast of Haifa are only part of larger Levantine Basin which the United States Geological Survey estimates at containing 122tcf of recoverable natural gas. Israel is just the first of several Middle East countries to begin development of underwater reserves. While this gives the Jewish state an economic advantage for the next decade, competition over energy trading in the region looms.

As Simon Henderson of the Washington Institute of Near East Policy told the Times of Israel, “Instead of being an ingredient to calm the tension of the east Mediterranean, the discoveries of gas conversely provide another opportunity for rivalry. There is a reason why they call this ‘diplomatically trapped’ gas.”

Yet so far, Israeli companies have been successful in navigating the rough waters of Mediterranean gas exportation. Noble Energy, a Houston-based business that helps drill Israeli oil, has had prominent breakthroughs. In January of 2014, the Palestinian Authority became the first Arab government to sign a deal with Noble Energy to a tune of $1.2 billion for a 20 year supply. In addition, Egypt and Jordan are in desperate need of stable energy supplies. Last May, the Spanish controlled company Union Fenosa in Egypt agreed to purchase 2.5tcf of Leviathan liquefied natural gas (LNG). Jordanian heavy industry factories on the Dead Sea have already purchased $500 million worth of gas to begin flowing in 2017. Both Noble and the Delek Group are consulting with the Jordanian government on an even bigger deal that would provide the Hashemite Kingdom with potentially three billion cubic meters of fuel per year.

However, none of these deals are binding. Within Jordan and Egyptian populations, significant anti-Israel sentiment exits regarding the treatment of Palestinians. In the case of Egypt, plans for further gas cooperation with Israel may come down to the whims of the state and military elites. As David Wurmser of Delphi Global Analysis Group told Bloomberg News in May of 2014, “The situation there is very dynamic, and the Egyptian government will face significant pressure in the next 6-12 months that could change its calculations on Israeli gas.”

The pessimistic outlook on the “gas for peace” argument is further bolstered by the reaction from Israel’s hostile neighbors to its exportation plans. Gas has already worsened Israeli relations with Lebanon as leaders in Beirut have claimed sovereignty over several Mediterranean gas sites in Israeli water territory. In addition, Lebanon fears that Israel will seek to drill within Lebanese waters and has rushed to begin development of its own maritime gas reserves. While Lebanon could produce natural gas by 2020, their government lacks the technological advantages and American infrastructure that Israel possesses. Until then, Hezbollah remains wary of Israeli energy independence and may seek military action to secure its own interests in the region.

Gas has not created more geopolitical security for Israel, but increased costs for national defense. There are legitimate concerns within the Israeli polity that terrorist groups such as Hamas or Hezbollah will launch rocket attacks against Israeli drilling sites. Therefore, in 2013 the IDF navy drafted a complete maritime defense plan of existing stations including the deployment of Iron Dome technology to tankers on the sea. The cost of this plan has been estimated at $3 billion as security poses significant financial challenges to the emerging Israeli energy sector. To protect its gas assets, the navy has beefed up its arsenal of fast moving ships and ordered two large-scale German tankers in December of 2013.

Levantine gas outside Israel’s waters will not remain untapped forever. As Cyprus, Lebanon, and Turkey explore their own potential gas reserves, military build-up of the eastern Mediterranean will be an unintended consequence of energy exploration. Arms racing between Israel and Hezbollah to protect vital energy reserves will increase the potential for military conflict and make international investors hesitant to fund any eastern Mediterranean energy venture.

With a skyrocketing energy demand and advanced economy, Turkey represents an optimal trading partner for Israeli gas. A natural gas pipeline from Israel to Turkey would be a political and economic milestone in relations between the two rising powers in the Middle East. While Turkish Energy and Natural Resource Minister Taner Yildiz has stated that the country is interested in exporting gas from Leviathan, many political obstacles remain within Turkish-Israeli relations. Despite Netanyahu’s public apology for the Flotilla incident of 2010 that killed nine Turkish citizens, complete rapprochement between the two states has not been achieved. Vast quantities of Leviathan gas could remain trapped unless relations between Turkey and Israel improve.

In addition, the role of Cyprus within the gas triangle of the eastern Mediterranean is making business partnerships in the region even more complex. Israeli-Cyprus relations have warmed recently as the small island nation is courting international investment to export Leviathan gas to Europe. However, any Israeli cooperation with Greek Cyprus would preclude a lasting partnership with the more powerful and wealthy Turkey. All of these factors make a potential “peace-pipeline” between Israel and Turkey a fantasy at the moment.

There is no precedent in world history that proves energy trading is an incentive for peace. While energy cooperation can improve relations between competing states, it cannot create peaceful relations. In many cases such as the East Mediterranean, energy discoveries has led to further political disputes and conflicts between states that seek to profit from these resources. With Noble Energy signing a contract in Cyprus to develop its Aphrodite field, Israel will soon no longer be the sole driller on the Mediterranean Sea. The next two decades could produce a major energy revolution in the region with several countries following Israel’s lead.

The idea that Israeli gas will solve long standing political conflicts with Syria, Lebanon, or Turkey is a myth. Instead of cooperation, the natural gas boom will lead to increased military securitization of territorial waters in the Levant as seen through current political maneuverings between the IDF and Hezbollah. In fact, the presence of Mediterranean gas has caused more security challenges for Israel, despite the hundreds of billions of dollars in revenue Tamar and Leviathan will produce.

The development of Israel as a petro-producer must be put in context. In comparison to the oil giants of the Persian Gulf such as Saudi Arabia, Israel’s reserve of 30tcf of natural gas is a drop in the bucket. Yet for a country Israel’s size, energy security for the next 50 years represents a major geopolitical advantage from past dependence on Arab states. Natural gas will be used to accommodate Israel’s growing energy demand and to power intensive desalinization plants that now provide water security to the Jewish state. Revenues generated from gas exportation can be used to revitalize a beleaguered state education system or to improve public transportation. Put simply, the possibilities are endless.

Oil maverick John Brown was right to believe that God has granted resource wealth to the Jews. Yet Israel’s gold came not on land but via the sea. Ultimately patience and Gideon Tadmor’s chutzpah paid off in the end. American technology and Israeli ingenuity has led to the first natural gas boom in the holy land. As Brown has said, “The upside on betting on God is pretty darn good.”

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