Israel Follows in the Footsteps of America’s Energy Revolution, with Equally Weighty Implications

Michael Teague  |

There is another “energy revolution” taking place concurrent to the one the United States is now experiencing, and one that also carries potentially serious implications.

In January of 2009, exploratory drilling discovered what is now estimated to be up to 10 trillion cubic feet of natural gas in the Tamar sands under the floor of the Levant Basin in the Eastern Mediterranean, about 50 miles west of the ancient port city of Haifa in Israel. This past weekend, the English edition of Haaretz reported that gas had finally begun pumping from the drilling station to the mainland.

Tamar is operated by a consortium headed by the American oil and gas company Noble Energy (NBL), who own 36 percent, with the rest being Israeli companies: Delek Drilling, an energy company specializing in natural gas exploration and production in the Eastern Mediterranean, owns 15.625 percent; Isramco Negev 2 LP, an company that “holds interests in oil and gas properties in Israel”, owns 28.75 percent; Avner Oil & Gas Exploration LP, owns 15.625 percent, and Dor Gas Exploration, owns 4 percent. Delek and Avner are both holdings of Delek Group Ltd, one of Israel’s largest and most powerful companies, trading on the New York Stock Exchange as Delek US Holdings (DK).

The natural gas boom in Israel dates back to 1999 with the discovery of the Mari-B field, and includes other drilling licenses such as the Tanin, the Noa, the Dalit, the Sara, and the Myra, with no sign of exploration letting up any time soon.

Most recently, the 2010 discovery of the Leviathan field is the biggest so far, as it is estimated to hold up to 16 trillion cubic feet of gas, with an additional 600 million barrels of oil. It too is run by a consortium similar to that of the Tamar field, with almost 39.66 percent owned by Noble Energy, 22.67 by Delek Drilling, 22.67 percent by Avner Oil, and 15 percent by Ratio Oil Exploration, another Israeli company. Production at Leviathan is expected to begin sometime between 2015 and 2017.

It might seem like a given that energy independence would benefit the domestic economies of both countries, especially considering the very precarious dependencies in which both have found themselves in the past as a result of their domestic energy needs.

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Indeed, since it became the stuff of big headlines that the U.S. would soon become the world’s largest energy producer, the general assumption has been that energy prices would eventually go down, especially with all of the natural gas reserves that keep being discovered within shale formations throughout the country.

That such may not be the case can be seen by having a look at the United States Natural Gas ETF (UNG), which has gained almost 28 percent over the past year, and 16.25 percent in 2013, currently trading at $21.64.

Only a year ago, it was thought that overproduction and record surpluses would keep prices of American natural gas low for years to come. But profitability of exports, increased demand for the resource from utilities looking to replace coal, increasing use of natural gas in petrochemicals, vehicle fuel, and most importantly industrial use of natural gas, have all contributed to a spike in prices.

So has the decrease in drilling over the past year, a drop of 36 percent according to the oil field services company Baker Hughes (BHI).

This confluence of events has given investors, and speculators, reasons to be bullish on natural gas, further driving up prices.

The situation is no different in Israel, where the pumping from Tamar alone is expected to boost the country’s GDP by one full percent within the year.

However, the Israeli Electric Corporation, the main supplier of electricity to the country, is expected to buy Tamar’s gas for a high price, a high price for with the ordinary Israeli taxpayer will be footing the bill.

And these consequences are actually limited or naive when considering the larger geopolitical balances that could be disrupted when the U.S., for instance, becomes fully energy independent, to say nothing of a major exporter of energy. A “what if?” along these lines could arrive in the case when the United States is no longer beholden to the costly and unpopular task of ensuring the survival of the gulf’s oil monarchies, at least in the way it has done up to now.

Israel’s offshore drilling will have consequences for its contentious relationships with all of its Arab neighbors, to say nothing of the Cypriot and Greek partners with whom it has already made plans to export estimated surpluses to Turkey, Europe, and Russia- all players currently embroiled in their own struggles over energy resources.

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