Israel Is About to Become the Middle East’s Next Energy Powerhouse

Stories from Moment.
Feb. 26 2014 12:14 PM

Israel’s Big Gusher

Forget olive oil. Israel’s offshore drilling is about to make it the Middle East’s next energy exporter.

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The Sedco Express drilling rig above the Tamar gas field in the Mediterranean.

Photo by Lihee Avidan

It wasn’t long ago that Israel’s oil and gas industry was the territory of wishful thinkers like John Brown, a born-again Christian from Texas who saw a map to oil gushers in readings of the Bible. In the 1980s, I interviewed his site manager, also a born-again Christian, who told me that the Lord had bequeathed oil to his chosen people. In a cluttered cabin in the hills of central Israel, the rangy Texan leafed through his copy of the Bible and read me Deuteronomy 33:24: “Of Asher he said, More blessed than sons is Asher. May he be favored by his brothers, and may he dip his foot in oil.”

Asher and his descendants hadn’t found oil, the prospector said, but they just didn’t know where to look—or have the tools we have today. For guidance, he pointed to another verse, Deuteronomy 32:12-13: “The Lord alone guided him, and there was no foreign god with him. He made him ride on the high places of the earth, and he ate the produce of the field. And He made him suck honey from the rock, and oil from the flinty rock.”

“High places—rock—there’s oil here somewhere,” the prospector continued, throwing his arms wide to include all the hills and forests and distant sea. However, after years of searching the desert and rocky wastes, he confessed: “Maybe I got it wrong. Maybe they meant olive oil.”

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Israel is blessed in the olive oil department but from its founding had no choice but to import all of its energy—oil, gas, and coal. Golda Meir often joked that God had guided the Jewish people through the desert to the only land in the Middle East with no oil. To date, little on-shore oil has been found, although there is still hope. But after many failed attempts by offshore drilling companies, a young Israeli lawyer named Gideon Tadmor got it right. Egypt, he theorized, had discovered commercial quantities of natural gas in the Mediterranean, and there was no reason the gas fields would stop at Israel’s maritime border.

In 1991, Tadmor, who had always wanted to be an entrepreneur, founded Avner Energy with his uncle, David Cohen. “When I finished law school, I gave the diploma to my mother,” he says. “I told her, ‘Now hang it on the wall and leave me—let me live my own life.’ ”

Today, looking back, justifiably smug and a good deal wealthier, the 50-year-old Tadmor partly echoes the faith of his Christian predecessors: “Obviously we needed luck and God’s help. We needed the resources to be underground. But I think the unique contribution that we were able to bring is the human spirit and belief.”

More than that, Tadmor needed experience and money, and because he wanted to drill deep into the seabed, far offshore, he sought investment from the Texan oil giants. Nobody bit; they were afraid, he believes, of upsetting their much bigger Arab customers. Finally a small Houston-based company, with no Arab clients, known today as Noble Energy, agreed to supply most of the capital, the drilling technology, and the analytic skills needed to interpret seismic data used to determine good places to drill.

Tadmor’s company, with partners Noble and the Israeli Delek Group, found several small gas fields and then two large ones, propelling Israel into a new energy realm: Today, Israel’s known gas reserves are 30 trillion cubic feet (tcf), and the United States Geological Survey says there’s at least twice that amount still to be discovered in Israeli waters. That exceeds Israel’s energy needs for the next 30 to 50 years. Moreover, the USGS predicts there are 1.7 billion barrels of oil gas basins as well.

Tadmor and his partners control almost all the gas, but there is no doubt that the new energy industry will revolutionize Israel’s economy, as well as provide the country with greater strategic and political clout. But the new discoveries have also opened up a Pandora’s box of thorny social, financial, security, and foreign policy concerns.

* * *

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Gideon Tadmor stands on the rig.

Photo by Lihee Avidan

In 2009, Tadmor and Noble hit upon their first “gusher,” the Tamar reservoir (9 tcf), 56 miles off Israel’s coast. It took $3.25 billion and four years from conception to operation of their first platform using equipment manufactured in Corpus Christi, Texas, and hauled across 7,000 miles of sea. The natural gas—which lies under at least 5,000 feet of water and more than a mile beneath the seabed—began flowing in March 2013.

The timing was fortuitous. In 2005, Israel had signed a 15-year agreement with the Egyptian government to buy natural gas. But with the advent of the Arab Spring, the pipeline traversing the Sinai repeatedly fell victim to Arab saboteurs, leading to electricity shortages in Israel. Then in 2012, Cairo canceled the agreement altogether. The loss of the Egyptian gas turned out to be only a minor crisis, and one easily bridged by a few months of gas imported via tankers.

Already, the Tamar field supplies the bulk of Israel’s natural gas needs, including 40 percent of electric power. The gas is funneled by natural pressure more than 100 miles through two pipelines to the Tamar platform. It is then piped to a terminal onshore in Ashdod to be fed to several power stations, which convert the gas into electricity to power Israel’s electric grid.

In 2010, a year after finding the Tamar field, Noble discovered the much larger Leviathan reservoir (17 tcf) about 80 miles off the coast of Haifa. Once Leviathan comes on line, around 2017, Tadmor and his partners will be able to do far more than provide Israel’s energy needs. The potential financial windfall has Israel’s economists and politicians starry-eyed. “Israel will soon be a net exporter of energy, and this is a tremendous boost to the Israeli economy and will therefore strengthen its political, geopolitical, and diplomatic position in that part of the Middle East,” says Simon Henderson, a Middle East energy analyst and senior fellow at the Washington Institute for Near East Policy. “This is a big deal. Most people don’t realize what a big deal this is.”

Nevertheless, Henderson says, the finds need to be put in perspective. “The amount of gas in Israel is not big in terms of the world,” he says. “This doesn’t mean that Israel is going to have bigger energy resources than Saudi Arabia, Qatar, Kuwait, or Iran, even if Israel discovers all the gas—and oil—predicted. Iran, for example, currently has nearly 1,200 tcf, compared to Israel’s 30 tcf. Israel’s potential reserves may be only as high as 100 tcf.”

Still, Israel is wrestling with how this newfound wealth should be used. Having made huge investments, oil and gas companies such as Noble are eager for high returns made possible by exports. In response, last June, the Israeli Cabinet decided to allocate 60 percent for domestic use and to export the rest. Prime Minister Benjamin Netanyahu called the gas “a gift from nature” that could earn Israel $60 billion in tax and royalties.

The 40 percent export figure is way too high for some critics. Knesset member Tamar Zandberg, one of the most vocal opponents of the government’s plans for its gas windfall, worries that too much of the export income will go to the military, which already consumes nearly 20 percent of Israel’s budget, more than other Western nations. “Poverty is a bigger threat than security right now to Israel,” she says. “Prices are going up, salaries are going down, and social services like, for example, housing are being neglected. We should build a more viable and a more sustainable economy. And this is something that the natural gas can truly help us do.” Israel’s president, Shimon Peres, has called for spending the new revenue on education. “We’ve now found gas, let’s invest in the most important thing, in children,” Peres said over the summer.

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