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Finding manna from heaven under the sea

September 10, 2012

The Financial Times has an excellent article on recent natural gas discoveries off the coast of Israel.  For many decades, the commonly held perception of Israel was that it is the only country in the Middle East without oil.  The recent discoveries, which involved hard work and long odds, turn the old perception on its head.

Energy independence is extremely important for the U.S. and the West at large.  But it may be a matter of existential survival for Israel.  Israel has had to depend exclusively on imported energy in the past, leaving it vulnerable to price shocks and supply interruptions.  Natural gas deposits at Tamar and Leviathan will go a long way in helping Israel to write its own future.

Here’s a long excerpt, but you should take a look at the full piece:

Field of dreams: Israel’s natural gas

Aug. 31

By Tobias Buck

After decades of importing every drop of fuel, Israel has struck it rich, uncovering vast reserves of natural gas in the Mediterranean

The black and yellow helicopter heads north from Tel Aviv, passing over empty beaches, a yacht harbour and a string of sprawling seafront residences that house some of Israel’s wealthiest families. After a few minutes the pilot makes a sharp turn to the left and steers his ageing Bell 412 towards the open sea.

For more than half an hour, all there is to see is the blue waters of the Mediterranean. Then suddenly a hulking mass of brightly painted steel rises from the midday haze. Towering more than 100m above the water, this is the Sedco Express, a drilling rig that has been operating in this stretch of ocean for almost three years. As the helicopter touches down on the landing pad, we see a small blue and white Star of David flag fluttering in the wind. It is the only sign that the Sedco Express sits atop one of the greatest treasures that Israel has ever found. Far below, connected to the rig by a slender steel pipe that runs through 1,700m of ocean and another 4,500m of rock and sand, lies a vast reservoir of natural gas known as the Tamar field.

The men on board the Sedco Express are busy testing the field’s multiple wells in preparation for the long-awaited day next April, when a US-Israeli consortium will start pumping the gas onshore. With reserves of almost 10 trillion cubic feet of natural gas, the Tamar field is a hugely valuable asset for the Israeli economy. Discovered in January 2009, it was the biggest gas find in the world that year, and by far the biggest ever made in Israeli waters. But the record held for barely two years. In December 2010, Tamar was dwarfed by the discovery of the Leviathan gasfield some 20 miles farther east – the largest deepwater gas reservoir found anywhere in the world over the past decade. The two fields, together with a string of smaller discoveries, will cover Israel’s domestic demand for gas for at least the next 25 years, and still leave hundreds of billions of cubic feet for sale abroad. The government take from the gasfields alone is forecast to reach at least $140bn over the next three decades – a staggering sum for a relatively small economy such as Israel’s.

Experts are convinced that Tamar and Leviathan will not be the last big Israeli discoveries. They point to the US Geological Survey, which estimates that the subsea area that runs from Egypt all the way north to Turkey, also known as the Levantine Basin, contains more than 120 trillion cubic feet of natural gas. Israeli waters account for some 40 per cent of the total. Should these estimates be confirmed through discoveries in the years ahead, Israel’s natural gas reserves would count among the 25 largest in the world, on a par with the proven reserves of Libya and ahead of those of India and The Netherlands. For decades a barren energy island, forced to import every drop of fuel, Israel today stands on the cusp of an economic revolution, fuelled by the vast riches that lie below its waters.

. . .

It is a revolution that has gripped ministerial offices and corporate boardrooms alike. Since the discovery of Leviathan, the country has been in the midst of an intense and often controversial debate over how best to use the new resources at its disposal. All the classic dilemmas associated with hydrocarbon discoveries have resurfaced, though often with a surprising Israeli twist. Should the gas be exported or used at home? What share of the new wealth belongs to the government and what to the companies that made the discoveries in the first place? And how far should Israel go towards turning itself into a “gassified” national economy, in which power stations, homes, industry and the transportation system alike all run on natural gas?

A final issue, and perhaps the most poignant of all the questions facing Israeli policy makers, is how the discoveries will affect the country’s standing in the region. Some worry that fields such as Leviathan will become a focal point for tensions, and perhaps even a target for Israel’s many enemies. Others hope that the gas will serve as a force for good, and help Israel build economic and political bridges to its neighbours, some of whom remain as energy-starved as Israel was until recently.

The recent discoveries are so large, and have come so swiftly, that some Israelis are having difficulty adjusting to the new reality. Even hardened energy executives speak of a “miracle” when discussing Israel’s natural gas story; others have resorted to the heavens to explain the new-found wealth. No less a figure than Benjamin Netanyahu, Israel’s prime minister, recently compared the discoveries to “manna from heaven” – the mystical food that sustained the Israelites during their 40 years in the desert.

Yet for all the talk of divine intervention, the discovery of Leviathan, Tamar and other fields would not have happened without the fierce determination of men like Gideon Tadmor. A cheerful, rotund 49-year-old, he is widely regarded as the pioneer of Israel’s natural gas industry.

Tadmor trained as a lawyer and dabbled in the property business before deciding more than two decades ago that it was time to turn his attention to oil and gas exploration. It was not the most promising line of business. Like all Israelis, Tadmor was only too familiar with the famous complaint made by Golda Meir, and repeated endlessly since then. “Let me tell you something that we Israelis have against Moses,” the then prime minister remarked at a banquet in 1973. “He took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil.”

Over the years that claim became an article of faith for many Israelis. The country’s conspicuous lack of natural resources chimed with the broader national narrative of a state struggling and succeeding against the odds. It even served to heighten Israeli pride in the country’s economic and military achievements, which frequently outshone those of nearby countries rolling in oil wealth. But, for many decades, Meir’s complaint was also borne out on the ground, which stubbornly refused to yield all but the tiniest amount of hydrocarbons.

The years of failure meant there was no competition when Tadmor started knocking on the doors of the Israeli government to request exploration licences. His company, Avner Oil & Gas, started drilling for oil onshore in 1991, before moving into the deep waters close to the Israeli coastline and eventually pushing on into even greater depths. “We had looked at the vast success and activity [of gas exploration] in Egypt,” he tells me, sitting in the conference room of his headquarters north of Tel Aviv. “We all felt that the geological trend would not stop at the political border – and should extend into Israeli waters.”

Drilling in deep waters, however, required not only deep pockets but also profound technical knowhow. Neither was at the disposal of the Israeli upstarts. Tadmor and his partners decided to bring in a strategic partner, launching a quest that turned out to be fraught with more obstacles than anything the company had experienced to date. “It was an endless process. We were willing to look everywhere. We knew that finding a strategic partner would be fundamental for success, because in Israel there was no expertise.”

Tadmor and his partners thought they had a compelling geological story: they were proposing to drill in an area that showed much the same characteristics as the nearby Egyptian waters where discoveries had been made. Yet they were turned down again and again, fuelling suspicions that the big oil groups in Europe and the US were unwilling to risk their vital relationship with Arab countries by investing in Israel: “There is no question about it. Anyone who knows anything about this industry knows that there is an overwhelming geopolitical consideration with top companies when they decide to enter or exit a country,” says Tadmor. “Even during the best times, when Israeli and Palestinian leaders signed the Oslo accords in 1993, it was very obvious that for many of the big players there were geopolitical considerations that clouded their approach towards Israel.”

. . .

Geopolitical considerations, of course, have been at the heart of the oil and gas industry almost from the beginning. As the target of an Arab oil boycott, Israel itself was forced to learn the hard way that energy security and national security are closely entwined. Already scrambling to secure supplies, the country was dealt another rude shock in 1973, when Arab oil producers responded to Israel’s victory in the Yom Kippur war by launching a sweeping oil embargo. It was a move that shaped the country’s energy policy for years to come, instilling in Israeli leaders a desperate desire for energy independence.

“A big part of the policy community in Israel was hugely affected by the Arab oil boycott in the early 1970s,” says Brenda Shaffer, an expert on Israeli energy policy at the University of Haifa. “It made people here give an almost disproportionate importance to holding energy volumes.”

Read the full article here.

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