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.”
A quarter of a century later,
Tadmor and his partners felt they were finally close to delivering those
volumes. Without money and expertise from abroad, however, Israel’s hydrocarbon
potential would remain untapped for many years if not decades. And without a
strategic partner or other signs of progress, Avner Oil risked losing its
offshore exploration licences. It was time for desperate measures: “We sent a
guy to Houston for three months with one mission. I told him: go to Houston,
open the phone book and go through it company by company. Call every one of
them, and bring us a partner.”
After three months, only two
companies remained on that list. Neither seemed too keen, but Tadmor decided to
take his lawyer and fly out to Houston all the same. “At the time the price of
oil was $15 per barrel. That meant no one was taking any aggressive decisions
to enter new countries. The environment was very, very problematic,” he
recalls. Indeed, the macroeconomic environment was not the only inauspicious
sign. As his plane taxied towards the runway at Tel Aviv airport, Tadmor
spotted something unusual: “All of a sudden I see a black cat running down the
aisle. It was a chaotic situation. The stewardesses were running after the cat
with a blanket, trying to catch it. We eventually turned back, and the cat was
handed over. But one passenger decided to leave the plane. She said: ‘With a
black cat on the plane, nothing good can happen.’”
The plane returned to the
runway and started accelerating for take-off. Then Tadmor had a second nasty
surprise: “I hear a huge blast – one of the engines had exploded!” It was a
near-miss: had the engine blown up in the air, the plane might well have
crashed, putting a premature end to both Tadmor and Israel’s best hope of
finding gas in the Mediterranean. “I told my lawyer: ‘I don’t know if anything
good will come of this experience.’ But everything that came out from this trip
was good.”
In fact the ill-omened trip to
Houston produced a deal with a small Oklahoma-based exploration company called
Samedan Oil Corporation. Samedan was too small to worry about its relationship
with Arab oil ministries, but large enough to seek expansion abroad. It would
later change its name to Noble Energy, and emerge alongside Avner and Delek, an
Israeli conglomerate, as one of the three leading players in the Israeli
natural gas boom (Delek later bought out Avner, but kept Tadmor on to run the
combined group). To this day, the three groups control most of the big fields
discovered in the Levantine basin, with Noble holding the largest individual
stake in fields such as Leviathan, Tamar and Yam Tethys.
The partners drilled their
first well in 1999, in a field known as Noa. They found gas, but the quantity
was too small to allow immediate commercial exploitation. A year later, in a
nearby field known as Mari-B, they were successful, uncovering a field that
contained about a trillion cubic feet of natural gas. Four years later, the gas
started to flow to the mainland where it was used to generate electricity.
Tadmor and his partners had
proved that Israeli waters did contain natural gas, and that these reserves
could be exploited profitably. But the discoveries at Yam Tethys were a mere
taste of things to come. In January 2009, a consortium that again included
Noble, Delek and Avner, along with Isramco and Alon, two Israeli companies,
found Tamar. The following year came Leviathan, the discovery that finally
catapulted Israel into the big league. Speaking days before the drilling that
confirmed the huge find, Yitzhak Tshuva, the Delek chairman and one of the
wealthiest men in Israel, made a bold pronouncement: “This is geopolitical
power that Israel needs now more than ever,” he said of the natural gasfields.
“Israel will become a big international player, and it will have geopolitical
power vis a vis many countries.”
. . .
One of the men whose task is
to marshal that power is Uzi Landau, the minister for energy. A slim, wiry man
with a raspy voice and a hawkish political outlook, Landau is at pains to
accentuate the potential political benefits not just for Israel but for the
wider region. The minister says he is keen to export some of the country’s
natural gas to Jordan and the Palestinian territories: “We believe this will
not only be good business, but also highly important for coexistence. This will
eventually help a peace agreement. Natural gas is also important for the
political level. We wish to develop our relations with the region,” he says.
Landau points out that Israel
is already busy deepening its political and economic relationship with Cyprus,
which has itself found large gas deposits in waters adjacent to the Israeli
discoveries. There is even talk of building a gas pipeline to Cyprus, and of
connecting the Israeli power grid to the divided island through an undersea
cable. But not everyone is convinced that Israel’s natural gas riches will be a
force for regional integration. The northern fields such as Tamar and
Leviathan, for example, are not far from the disputed line that separates
Israeli and Lebanese territorial waters. Hizbollah, the Lebanese Shia group
that is one of Israel’s most committed enemies, has already accused Israel of
stealing Lebanese gas. Farther to the south, snaking its way through the Sinai
Peninsula, is another example of the pitfalls created by regional gas
diplomacy: the pipeline that carries Egyptian gas to Israel.
Initially hailed as a sign of
friendship and co-operation, the pipeline has since emerged as an object of
hate for many Egyptians, who resent the sale of cheap gas to Israel at a time
when Egypt itself faces chronic energy supply problems. The pipeline has been
blown up no fewer than 14 times during the past 18 months, and the supply deal
has now in effect been cancelled.
“We tend to think that
countries that hold a lot of oil and gas are very powerful. But if you look at
it more carefully, you see that this is a double-edged sword. Countries that
have large volumes of oil and gas tend to have a lot more problems. They tend
to get involved in conflicts more often than other countries. There is a
tendency towards war,” says Shaffer, the energy analyst from Haifa University.
She points out that Cyprus is
once again at loggerheads with Turkey over the recent gas discoveries, and that
Israel, thanks to its new alliance, may yet find itself drawn into the
escalation: “The gas finds have already defrosted the frozen Cypriot conflict.
So Israel is now finding itself involved in a conflict that it has never been
involved in before.”
But fear of conflict is not
the only worry associated with the gas. As delighted as they are over the
recent finds, Israeli officials say they are only too aware of the “resource
curse” that afflicts countries with abundant natural resources, whereby the
discovery of great natural wealth is often followed by disappointing economic
growth and an erosion of competitiveness.
“We have to be very careful
not to think that with natural gas there is no more need to continue in the
same direction of the past: to focus on education, focus on research and
development and to do whatever we can to solidify the social fabric of our
society,” argues Landau. He points out that “the political leadership of our
country is very sensitive to that problem”, but warns that the country will
have to be careful “not to fall into that pit”.
For the time being, Israeli
leaders can claim with some justification that their response to the new-found
wealth has been measured and sensible. There has been a notable emphasis on
sustainability, not least in the way the state intends to use the new
resources. Though it will take years before the government will reap meaningful
gas revenues, it has already set up a sovereign wealth fund to manage part of
the new wealth. The fund, which follows the model set by Norway, is expected to swell to $80bn by 2040, and is
intended to provide a financial cushion for future crises. But some of the
expected government take (“some” meaning about $60bn over the next three
decades) will flow straight into the state budget to fund education projects
and bolster national security.
For a state that spent so many
decades as an economic backwater, and that continues to rely on financial
support from the US, this new largesse will take some getting used to. The same
pleasing challenge faces Tadmor and the handful of other businessmen who
believed in Israel’s gas potential long before the first drills broke through
to fields such as Leviathan.
“It has topped all my
expectations,” says Tadmor.“So what I need to do now is raise my expectations,”
he adds with a grin.
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