Friday, 31 December 2010

Huge gas find a boon for Israel

ADRIAN MORROW

From Friday's Globe and Mail
Published

A massive offshore natural gas reserve is poised to give Israel energy security, freeing the desert nation from the threat of boycotts and reshaping the political dynamics of the Middle East.

Estimated to contain 16 trillion cubic feet of gas – equivalent to more than a quarter of Canada’s proven reserves and enough to meet Israel’s domestic demand for 100 years – the Leviathan field is believed to be the largest such deepwater gas discovery in a decade.

Infrastructure Minister Uzi Landau trumpeted the find as “the most important energy news since the founding of the state.”

Observers say the windfall, whose size was confirmed this week, could also affect Israel’s relationships not only with its traditional enemies but also with its allies – and free the energy-poor country in an oil-rich region from the often prohibitively high prices of heat.

But the country’s ability to exploit the field will be fraught with difficulties: It must contend with the challenge of drilling far beneath the earth in deep waters as well as with building infrastructure to transport the gas and sorting out clashes with energy companies over its royalty regime. The field is not expected to start producing for at least six years.

The Leviathan find is believed to cover roughly 325 square kilometres off the country’s north coast – an area about twice the size of the city of Vancouver or half the size of Toronto – in an area called the Levant basin that has already yielded smaller fields. The lease is operated by Houston-based Noble Energy, plus Israeli companies Ratio Oil Exploration and Delek Drilling, which said they plan to drill two more exploratory wells in the coming months to confirm the findings.

If exploited, the gas will mean Israel won’t have to buy on the open market any more and could also lessen its dependence on subsidies from the U.S. government, which has sought to use its clout to push its ally to curb settlements in the West Bank and to try to reach a peace agreement with the Palestinians.

“It’s a long-term insurance policy against possible boycotts or sanctions,” Michael Byers, a political scientist and Middle East expert at the University of British Columbia, said of the new resource. “One could argue that it could give Israel more leeway in terms of its foreign policy and allow it to act in defiance of other countries and the international community.”

Neighbouring countries, including Lebanon, Syria and Cyprus, are likely to step up their own efforts to find natural gas in the coastal waters, which could ratchet up tensions. Future natural gas infrastructure may also be a target for Israel’s enemies.

“A worst-case scenario would be a bloody fight,” said Renan Levine, a University of Toronto political scientist who has researched Israeli politics. Internally, the country could also fall into the “natural resource curse,” in which money is funnelled to groups that hold the country’s balance of power to placate them, he said.

However, the gas may actually help bring Israel closer to its neighbours, as they sit down to negotiate their maritime boundaries, said Prof. Byers, who points to the recent resolution of exactly that question between Israel and Cyprus as an example.

Besides which, regional conflict is bad for business.

“One could argue that what we’re seeing here is Israel being led into a more co-operative environment,” he said, adding that it’s not in either Israel’s or Lebanon’s interest to go to war. “If Israel does this properly – if it negotiates maritime boundaries, if it works co-operatively with multinational corporations – then it could be a very beneficial thing.”

Regardless of the find’s geopolitical implications, simply getting it out of the ground will present major difficulties. The gas lies under more than 1,600 metres of water in a world skittish about ocean drilling after the Gulf of Mexico spill this year.

Israel must not only find a market for the product but build the pipelines or liquefy the gas to transport it. In a statement, Noble tried to address the concerns: “For nearly a year now, we have had a team evaluating market possibilities, which includes various pipeline and [liquefied natural gas] options. It's our belief that the natural gas resources at Leviathan are sufficient to support one or more of the options being studied,” president David Stover said.

Israel is also sorting out resource royalties. The government has been considering ending tax breaks for energy companies and raising a windfall profits tax – a levy on especially high returns – by as much as 60 per cent. In addition to giving companies pause, these moves also have the potential to make it difficult to raise the financing necessary to pursue the opportunity.

With a report from The Wall Street Journal

Posted by Britannia Radio at 13:38