Thursday, January 19, 2017

Israel Joins OPEC?

Well, okay, not exactly, but Israel has been discovering massive reserves of fossil fuels, mostly off-shore, since 2010, resources that suggest such riches might also attach to its northern and incredibly unstable neighbor, Lebanon. We know that prices for natural gas and oil are far lower – but slowly rising – than they were in the heyday of petroleum prices just a few short years ago. Does this fact render exploration “not yet” economically feasible? No so fast. But it is definitely there.
Israel has been looking for energy since the 1950s, but the breakthrough came in 2010 with the discovery of fields called Leviathan and Tamar, said to hold 25 trillion to 30 trillion cubic feet of natural gas. A partnership led by Noble Energy, a Houston-based company, and the Delek Group, an Israeli firm, has developed wells in Tamar; the first supplies reached domestic markets in 2013.” New York Times, January 14th.
But Israel, despite a magnificent track record in entrepreneurial technological development, is still a highly-regulated economy, and finding massive fossil fuel reserves is equally massively disruptive to those regulatory systems in a new field that is rapidly expanding her GDP. Big deals with big companies with big exclusive deals rail Israel’s powerful antitrust sentiments: “Israeli gas now produces more than half of the country’s electricity and has bolstered its economy. Leo Leiderman, the chief economic adviser for Bank Hapoalim, estimated that along with the broader decline in energy prices, the influx of natural gas translated to an additional 2 percent of gross domestic product. And that is with only a part of the reserves currently being tapped.
“Leviathan, which is more than twice the size of Tamar, has yet to be developed. Exploration stalled because of disputes over how the government should regulate the potential boom. Critics like Shelly Yachimovich, a Labor leader in Parliament, complained that corporate ‘pigs’ would profit off resources that belonged to the Israeli people. The Noble partnership resisted what it called changing the rules after it took the risks and invested considerable money in the project.
”A government committee led by Eytan Sheshinski, an economics professor, put forward a new scheme to tax profits after exploration and development costs were recovered. But even after that was resolved, antitrust authorities determined that the companies represented a cartel.
“Prime Minister Benjamin Netanyahu’s government responded with a new regulatory plan, only to have it struck down in court. A new regulation framework was finally put in place last year, clearing the way for renewed exploration in the fall.
“Still, some western industry representatives harbor doubt. ‘The Netanyahu government has made courageous efforts to restore regulatory certainty and attract high-quality entrants to offshore Israel,’ said Jonathan Baron, an American consultant who has advised energy companies, including, at one point, Noble. ‘Yet the reputational damage as a result of the Sheshinski commission remains a serious problem.’” NY Times.
While internal regulatory issues represent a preliminary barrier to this fledgling industry, there is a much bigger gorilla in the room: the impact of a new petroleum/fossil fuel powerhouse in the Middle East, one that is a whole lot closer to Europe than the traditional oil-rich regional players. Could they build a pipeline to the Continent?
As the Trump Administration seems hell-bent on riling the local status quo – such as the exceptionally controversial plan to move the U.S. embassy from to Jerusalem (a city holy to Jews, Christians and Muslims alike) which will infuriate Arab nations like no other – the economic “convenience” of an eastern Mediterranean energy source carries equal potential for new regional political d├ętente if not entente.
“If all goes according to plan, Israel will not only become largely energy-independent, it will also supply neighbors that will have new reason to be friends… There is no guarantee that all will go according to plan, of course. Israel struggled for years to develop regulations to manage its newfound wealth. The international energy firms that Israel is now courting have other options in an evolving global market. And the politics of a new era, as President-elect Donald J. Trump encourages assertive Israeli action in Jerusalem and the West Bank, could kindle fresh conflicts with Arab neighbors that make energy partnerships problematic…
“‘Suddenly we are an energy player,’ Yuval Steinitz, the energy minister, said as he toured [a highly specialized ocean-going exploration vessel] a few weeks ago… The potential for enhancing Israel’s relations with its neighbors is alluring. Mr. Steinitz credited energy for a recent reconciliation with Turkey. This development came years after diplomatic relations had broken down over a violent confrontation at sea that resulted in the deaths of 10 Turkish activists who were trying to break through Israel’s naval blockade of Gaza.
“‘We were in a very negative course with the Turks,’ Mr. Steinitz said. ‘Two or three years ago, some in Israel even thought we might have armed conflict. Now we have opened relations with one of the strongest countries in the Middle East. So we already see diplomatic benefits.’
“Turkey has not agreed to an energy deal, but Jordan has. In September, Jordan signed an agreement to buy $10 billion in natural gas over the next 15 years, which would supply 40 percent of its electricity.
“Israel also has its eye on Egypt, and officials are contemplating a pipeline to CyprusGreece and eventually Italy to access European markets. To bring in more international energy firms, it has just put 24 blocks in the Mediterranean up for tender, with bids due back in April.” NY Times. Can this prospective economic interdependence fuel (sorry) better regional relations, particularly between oil-poor Arab neighbors and Israel, and is Israeli stability an important factor in enhancing “reliability” within notoriously volatile oil producing nations? Will oil and gas rewrite regional politics where negotiations have serially failed? Time will tell, but this natural resource is a very interesting and possibly peaceful answer to previously unsolvable regional tensions.
I’m Peter Dekom, and it is easy to miss these “little stories” that can rise to reshape the world.

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