February 12, 2011

Israel's Natural Gas Find

From the Weekly Standard:
At the end of December, a huge natural gas discovery was confirmed in the Eastern Mediterranean inside Israel’s territorial waters. Once referred to as an “energy island” that not only lacked energy reserves itself but was also cut off from the huge energy resources of the nearby Arab nations, Israel may well become over the next decade an energy exporter. The discovery of the Leviathan gas deposit in the Levant Basin marks a major development for Israel, with the potential for significant economic and strategic advantages, as well as implications for Europe, Russia, and the natural gas market.

Natural gas was first discovered off Israel’s coast in 1999, but the quantity was so small that until recently Israel was still contemplating importing natural gas from Russia by pipeline and liquid natural gas by tanker. Now Jerusalem’s plans are beginning to change. The Leviathan field, discovered by a consortium led by Houston-based Noble Energy, is the world’s largest offshore gas find in the past decade and vaults Israel into the ranks of the largest gas reserve holders in the world. (There are some indications that Leviathan might contain a world-scale oil deposit as well.)

Analysts believe that Leviathan could provide Israel with anywhere from 50-200 years of gas, at current levels of consumption, and more than meet growing demand for decades. In a few years Israel will no longer need gas from Egypt, which since 2008 has fueled 16 percent of Israel’s electricity and provided 40 percent of its natural gas. Israel plans to continue to buy Egyptian gas for the purpose of diversification and political ties, but the recent cutoff following sabotage of the gas pipeline in the Sinai highlights the dangers of dependence on Cairo. . . .

Leviathan’s abundance means Israel could export natural gas later this decade, most likely to Europe, which will face a widening gap between supply and demand. The most economical way to export to Europe would be by converting the gas to liquified natural gas (LNG) and shipping it by tanker. An LNG terminal could be built on Israel’s Mediterranean coast, float at sea, or be built in Cyprus. . . .

Even so, it won’t be entirely smooth sailing for Israel. According to the U.S. Geological Survey, Israel has a portion of the Levant Basin, but it is shared by Gaza, Lebanon, Cyprus, and the Turkey-dominated Turkish Republic of Northern Cyprus. Lebanon and Israel have exchanged tough rhetoric over border demarcation, and Beirut has already taken its case to the U.N.—and that’s not the worst of it. If there is another round of hostilities between Israel and Lebanon, a Hezbollah armed with tens of thousands of rockets might well target Israeli gas facilities.

Leviathan will also influence international relations through its impact on the global natural gas market. Israeli gas exports to Europe would compete with, and lead to reduced demand for, Russian gas, and thereby reduce Russia’s political influence in European capitals. And since Israeli gas exports would be priced by the gas market, they would further erode Russia’s beneficial gas export pricing, which has been uniquely pegged to oil prices, which are higher than gas prices. Reflecting Moscow’s interest in protecting its pricing and markets, its gas giant, Gazprom, which once wanted to sell Israel gas through Turkey, now wants to buy part of Israel’s gas fields. Reduced Russian influence in Europe is good for Israel’s chief ally, the United States. Washington has sought to undercut Russia’s dominant supply of natural gas to Europe, which is why it has supported construction of pipelines from Central Asia and the Middle East, like the proposed Nabucco line, that skirt Russia and Iran.

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