Will Israel Win the Energy Prize in the Levant Basin?

by Jerry Gordon (December 2011)

US Geologic Survey. The trigger has been the successful exploratory drilling completed by an Israeli American consortium, Noble Energy, Inc of Houston, Texas and Israeli partner Delek Group, which in 2009-2010 discovered more than 26 billion cubic feet of natural gas in several fields offshore in Israel’s Exclusive Economic Zone (EEZ) off shore in the Eastern Mediterranean. The Tamar, Leviathan smaller gas field discoveries offshore have the potential of achieving energy independence for Israel and creating a major export market across the Mediterranean in the EU. Coupled with the onshore development of more than 260 billion barrels of oil to be developed from shale formations in the Shfela basin, these natural gas discoveries will transform Israel’s economy, that is, if threats by Israel’s Arab neighbors and Turkey permit its secure development with allies Cyprus and Greece, who would share in important gains.

Daniel Yergin, renowned energy expert says in his new book, The Quest: Energy, Security, and the remaking of the Modern World:

Witness the quickening pace of news that occurred in November, 2011:

  • On November 23rd, Turkish Energy Minister Taner Yildiz said Israeli and Cypriot energy exploration in the Mediterranean was illegal, agreement should first be reached with all relevant parties, and resources should be equally shared.


  • Noble Energy, Inc. Map of Eastern Mediterranean Natural Gas Fields

    “Israel's offshore gas reserves poised to rise” that underlined how the imminence of energy independence for the Jewish state that may also be a potential geo-political game changer in the Eastern Mediterranean.

    The report noted:

    However, Stern told delegates at a conference on energy and the environment that the reserves figure is expected to rise by a further 453 bcm after production tests are completed at Leviathan field.

    The credit for this goes to a consortium composed of Houston, Texas-based Noble Energy, Inc. (Noble) (NBL-NYSE) and its Israeli partner, Delek Group. Noble has been developing offshore gas fields in the eastern Mediterranean since 1998. By 2013, the closer in Mari gas fields will come on stream, followed by the Tamar and the larger Leviathan field, currently under development. Other smaller gas fields are located off shore of the port of Ashdod.

    The Oil and Gas Journal had this comment from President Peres about the significance of the Cyprus-Israel bi-lateral development projects:

    Shfela Basin with an estimated 260 billion barrels -See Israel's Black Gold– will doubtless change the shape of geo-political alliances.

    analysis by Josh Kaplan for Israel Strategies.com, these discoveries will bolster the country’s goal of energy independence. Israel imports over 95% of natural gas that supports its energy infrastructure. Given the several pipeline explosions in Egypt’s Sinai Peninsula, both Israel and Jordan have had significant disruptions. The offshore gas fields will virtually supply securely all of Israel’s power requirements and create a significant export market. According to UBS reports:

    A UBS report estimates Israeli GDP growth attributable solely to natural gas production-related activities to be between 0.1%-0.2% in 2011 and 2012, and 0.2%-0.4% between 2013 and 2016. Production at the Leviathan site is expected to come on line in 2017, when the impact on GDP growth will be 0.6%-0.7%. GDP growth is expected to stay at this level through 2020 before tapering off to 0.1%-0.2% in 2021 and beyond.

    An increase in investment spending will help boost GDP. It will help drive the Israeli economy further into expansion mode because of the spillover effects of such spending, including increased employment and demand for domestically-manufactured equipment.

    [ . . .]

    UBS estimates that this [Sovereign Wealth Fund could rise to $42.5 billion by 2030 (5% of GDP) and could earn a 5% rate of return (0.04% of GDP/year).

    report from the Economist Intelligence Unit it would permit recovery of producer investments, as noted:

    In its interim report, the committee recommended maintaining the 12.5% rate for royalties, but it proposed major changes to the tax structure relating to energy exploration and exploitation, which was put in place in the 1950s and never updated, in favour of an increased share for the Israeli state.

    The proposed report of the Commitee was passed by the Knesset and agreements have been reached by the Israeli government on depreciation percentages/year, corporate taxes and on new permits for oil and gas exploration, both in Israel and off-shore.

    As noted earlier, the Israeli government has also signed an agreement with the government of The Republic of Cyprus on the joint exploration and infrastructure of gas and oil in the off-shore parts of Cyprus where prospecting has already started this past month.

    Wall Street Journal report:

    Nabucco has been planned since 2002 as a 2,400-mile (3,900-kilometer) pipeline that would carry up to 31 billion cubic meters of gas per year from eastern Turkey to a gas hub in Austria. The idea was developed to be a means of reducing the dependency of the EU on Russia for its gas supplies.

    UPI report on the talks and Israel’s gas export plans confirmed these développements:

    [. . .]

    Globes Israel Business Israel reported:

    Exclusive Economic Zones and Maritime Boundaries Conflicts


    Israel’s northern maritime border

    (EEZ) between the two countries. Both the EU Commission and the US approved of the agreement between Israel and the Republic of Cyprus. That agreement set the stage for more recent bi-lateral agreements covering joint development of Cyprus’ offshore gas deposits. It also inflamed Turkey’s Prime Minister Erdogan arousing his determination to establish his country’s EEZ off the northern coast of Turkey’s enclave in Cyprus. This further exacerbated relations between Turkey and Cyprus, given the latter's assumption of the revolving Presidency of the EU, as well as Turkey’s continual bullying charges against Israel. Turkey, a former ally of Israel, was Israel’s sixth leading trading partner until the Free Gaza Flotilla incidents in both 2010 and 2011. Cyprus has executed similar Delimitation EEZ agreements with Egypt, Lebanon and Syria. Moreover, the former Prime Minister of the Republic of Cyprus, Mr. Tassos Papadopoulos, had endeavored to conclude a similar agreement with Greece, which might have resolved the south-eastern EEZ boundaries with both Cyprus and Turkey.

    blog post on the EEZ boundary conflicts among the Republic of Cyprus, Greece and Turkey;

    Israel has rejected the possibility of indirect talks via the United Nations to resolve the issue, calling on Lebanon to begin negotiations on all border issues, not just the maritime border. The foreign and infrastructure ministries believe that Lebanon is claiming vast offshore territories that belong to Israel under international law.

    We signed an agreement with Cyprus that is in keeping with its agreement with Lebanon, when we announced our gas drilling. The Iranians and Hizbullah decided that it would be a good excuse for conflict with us.

    They decided to sketch a new border south of the line that was agreed to in talks between Lebanon and Cyprus, and basically entered our territory. It was done with premeditation in order to create conflict with us, just like the Sheba Farms.

    Hof responded by suggesting that Israel submit to the United Nations its own outlook on the border and try to launch a dialogue. Hof asked Israel not to turn the issue into a political spat but to see it as an economic and technical matter that could benefit all parties.

    The route that the border follows is now being submitted to the UN, about a year after Lebanon submitted its interpretation of the sea border route between the two countries. The decision on the matter will be taken by an arbitration body appointed by the UN, and not the US.

    The only fallout from moving the Israel Lebanon maritime border south would thus be in the Ruth and Alon gas and oil fields, if there are discoveries in these licenses, and if they spill over the border into Lebanon. If that is the case then development of these fields, which are far from the top of the agenda, would be delayed.

    Could this Maritime Border dispute between Lebanon and Israel erupt in a battle for control of gas drilling in the Eastern Mediterranean, upstaging the current contest between China and countries like Vietnam and the Philippines over oil development in the South China Sea? When Lebanon announced its Maritime Border plans, Israel Deputy Prime Minister for Infrastructure Dr. Uzi Landau said in a June 2010 Globes Israel Business report :

    Rising Security Concerns in the Levant Basin


    Source: New York Times and International Institute for Security Studies

    buzzing a Turkish research vessel off Cyprus’ southern coast in violation of Cyprus’ EEZ. An Israeli helicopter loitered overhead near a Turkish research vessel, Piri Reis, while the later was in the Aphrodite gas field claimed by the Republic of Cyprus. Israel’s AWACs aircraft were patrolling along the EEZ of Cyprus and Israel, at an altitude of more than 40,000 feet, monitoring Turkish intrusions over Cypriot airspace. In symbolic retaliation, Turkey’s Air Force jets made passes over a Greek island off Turkey’s southwestern coast.

    reported by Reuters, an Israel official noted, “We have replicated the arrangements already in place at Yam Tethys, referring to another Israeli gas field 40 km (25 miles) off southern Ashkelon port, near the waters of the Palestinian territory Gaza.” Those drilling platforms are vital to Israel’s securing its vast share of the offshore energy prize. Those security concerns about offshore development of gas fields’ security are reflected in these comments of former Israeli national security adviser, Giora Eiland, “One danger is a proximity attack, by frogmen, by boats, by terrorists in some fashion. Another bigger challenge is how to face the threat of missiles.” Israel’s naval expansion reflects the necessity of protecting fields in its EEZ offshore:

    scheduled to conduct maneuvers in the Eastern Mediterranean in late November, which might include a stop at the Cypriot port of Limmasol by a Russian flotilla including aircraft carrier, the Admiral Kuznetzov.Niall Ferguson, posited a bleak prospect for Israel caught between the Scylla and Charybdis of threats against its existence from a nuclear Iran versus protection of its valuable oil and gas properties, both on and off-shore, from predator Arab States and Turkey. The latter in a Bayesian sense would have a major payoff, perhaps sufficient to counter the existential one facing Israel from Iran. In a Wall Street Journal piece, “2021: The New Europe,” Ferguson drew a grim choice facing Israel’s leaders.

    Israel was entirely isolated.

    daunting choice confronting Israel, it would of course be preferable to protect the glittering prize of this potentially huge energy supply by declining to attack Iran's nuclear program, that is, if the threat to Israel's national existence weren't so very high. Nevertheless, by cannily recognizing the substantial economic gains from its oil and gas discoveries in the Levant basin and co-development projects with both Greece and Cyprus, Israel has enabled a geo-political shift that comes once in a generation. It has illustrated that candid comment of Eisenhower-era Secretary of State John Foster Dulles: “The United States of America does not have friends; it has interests.” However, the Obama Administration has given this issue scant attention, perhaps signalling that it doesn’t have America’s best energy interests in mind when it comes to support of Israel. The economic advantages of having a non-Islamic country in control of vast energy resources in the Middle East by dint of technological and entrepreneurial acumen has apparently not dawned on the West Wing of the White House. It has in both Athens and Nicosia. It may hopefully also dawn on the EU Commission in Brussels seeking secure deliveries of natural gas to provide future power needs for its collective industrial infrastructure. The geo-political realities of what Israel has unearthed should define relations between Washington and Jerusalem. Those realities should also figure prominently in foreign affairs issues to be debated in the 2012 Presidential campaign by whoever is picked as a Republican Presidential nominee.

     

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