Israeli Natural Gas: A Game Changer

Energy has always been at the center of the Arab-Israeli conflict, creating alliances and influencing the policies of allies and adversaries alike. Israel, most of all, has had a very complex relationship with its neighbors, mainly Egypt, which has been a supplier of energy to Israel since the Camp David Accords in 1978.

In the past few years and with a stunning announcement by Noble Energy in late December, Israel’s energy situation has changed dramatically. With Noble’s blockbuster Leviathan gas discovery and 2009’s Tamar discovery, Israel now enters the energy big leagues. Leviathan and Tamar are perhaps the largest purposeful gas discoveries in the world in each of the last two years, and Israel is likely to play a highly enhanced regional and geopolitical role as a result. Moreover, given the fact that the country has emerged as a global leader in many high-tech industries with a resultant expansion of energy usage, Israel may well become a trendsetter in the widespread use of compressed natural gas (CNG) and electric vehicles. Gas-to-liquids may not be far behind.

Without question the future of Israeli energy is tied to natural gas. Starting in 2004, Noble Energy, a Houston-based independent oil company – relatively small but quite capable in deepwater, began gas production from the Mari-B field. This marked the beginning of Israel’s shift towards natural gas and away from coal and even further away from fuel oils. The Noble partnership consists of Noble Energy and three Israeli firms – Delek Drilling, Avner Oil Exploration, and Delek Investments.

Beginnings: Mari-B and Associated Gas Fields

Mari-B was first discovered by the Noble partnership in 2000 in 796 feet (243 meters) of water and a total depth of 6,830 feet (2,082 meters). Mari is part of a group of fields in the southern offshore waters of Israel in the Pliocene stratigraphic-structural play, part of the Pleshet Basin. Current gas-in-place estimates range from 1.2 to 1.3 trillion cubic feet (Tcf). In 2004 the field began producing from a production platform with 600 MMcf/d of capacity. The gas is sold to the Israel Electric Corporation and brought to Tel Aviv for power generation and to Ashdod for power and refining. Average daily production in 2010 was 330 MMcf/d from six wells. Noble has stated that the field can produce up to its rated capacity of 600 MMcf/d.

There are other fields close by that can be tied back to the platform through a subsea network. These include Noa and its neighbors, Noa South, Nir, Or and Or South. These fields were discovered between 1999 and 2000. With the exception of Nir, the other fields are deepwater prospects between 2,300 and 2,550 feet. They hold an additional 1 Tcf of potential recoverable gas volumes, of which 70 percent is from the Noa fields. Because of its size, there are plans to tie Noa back to the Mari-B platform.

The Big Ones: Tamar and Leviathan

The first really big discovery came in early 2009, when Noble announced the discovery of a 5 Tcf field in a northwestern offshore block called Tamar. An appraisal well quickly followed the exploratory well and resulted in an increased estimate of the field’s potential gas in place to 8.4 Tcf, which was independently confirmed by Dallas-based Netherland, Sewell & Associates, Inc.

Tamar is located at a total depth of 16,000 feet under 5,500 feet of water, 90 kilometers off Israel’s northwestern coast. Noble’s development strategy for the find is still in progress. Currently, Israel’s gas demand is about 350 MMcf/d. If production from Tamar reaches 1 Bcf/d, which it easily could, it would be nearly triple the amount needed for domestic consumption. Transportation of the excess gas for foreign consumption becomes the next issue, which will be addressed shortly.

But the best was yet to come. In late December Noble Energy and partners announced that the Leviathan field, off the northern coast of Israel, contained at least 16 Tcf of recoverable gas, which would make it one of the largest offshore natural gas discoveries ever. Such a giant field, which may be followed by other discoveries, would certainly make Israel a prime candidate for natural gas exports. The United States Geological Survey has estimated that the Eastern Mediterranean may hold as much as 200 Tcf of ultimately recoverable gas.

The Economic Implications

Israel is a country that has had a tumultuous history, and its energy demand has always been in the immediate foreground. Since the nation’s establishment in 1948, it has fought six wars against its neighbors. With each war and, more recently, with each act of terrorism, one would expect Israel to descend into a darkness ever more difficult to transcend. Yet Israel has continued to expand its economy and make technological advances that revolutionized high-tech industries, agricultural products, and the defense establishment. Through lasting peace agreements with Egypt (1979) and Jordan (1994), as well as a commitment to peace with the Palestinians, Israel has ushered in a prosperous future.

In addition, there is little question that Israel is the most stable democracy in the region and the only Mideast country that does not limit free speech. It has an independent judicial system with a strong rule of law, one that does not shy away from convicting a former president, as it did in December. There is also a thriving market economy and, with the country’s growth in the past decade, the government has reduced its role to allow for increased market competition. The main industries include high-tech equipment, pharmaceuticals, software, telecommunications, metal products, and military technology and equipment. Israel has the fifth highest GDP per capita in the Middle East, trailing only four oil-rich nations. Countries like Saudi Arabia, Iran, and Egypt fall well behind on the basis of this metric. The prospect of becoming a natural gas exporter has huge implications, not only in terms of reducing Israel’s energy imports and dependence on potential adversaries, but also in sheer economic benefit. Moreover, few countries are more capable of actually pulling it off and, at the same time, gaining considerable benefit from using natural gas in the transportation sector.

The Geopolitical Implications

In geopolitical terms, Israel’s success in the energy arena is a game changer. The least worrisome eventuality would be a conflict with its northern neighbor, Lebanon, which is already claiming that the Leviathan prospect extends into its waters and is planning an exploration program off its coast. Further west, Noble already holds the only lease in Cypriot waters, which could prove a winner in exploring the outer reaches of the Levantine Basin. Israel and Cyprus are cooperating to define the borders of the continental shelf under the rules of the UN Convention on the Law of the Sea, under which a country has the right to explore and exploit natural resources within a distance of 200 nautical miles from its shores. The closest distance between Israel and Cyprus is 140 nautical miles and, according to international law, the boundary in such a case is set at the midpoint between the two countries.

Natural gas may bring Israel and Cyprus (and, by extension, Greece) into a natural alliance, and not just for the economic benefits. In a classic example of the old adage, “The enemy of my enemy is my friend,” the recent breech between Israel and Turkey brings the Greeks closer to Israel. A natural gas pipeline from the Israeli fields to Cyprus would be an obvious gesture of rapprochement. Such a pipeline would immediately benefit Cyprus, which is now in the process of making a decision to import highly expensive LNG, and could also become the vehicle for LNG liquefaction facilities and then LNG exports from Cyprus to natural gas-starved Europe, now suffocating under Russian natural gas imports. An alternative and substantial source of natural gas to Europe could provide what the ill-fated Nabucco pipeline is unlikely to ever deliver. Two LNG facilities on Cyprus, each with a capacity of 7 million metric tons, would amount to roughly 23 percent of Russian exports to Western Europe, which were 3.3 Tcf in 2009. Israeli natural gas, like almost everything else in that part of the world, has many more dimensions than the obvious. It’s a game changer in more ways than one.

Dr. Michael J. Economides is a Professor at the Cullen College of Engineering, University of Houston, and Editor-in-Chief of the Energy Tribune. Benjamin Shylabopersky also contributed to this article.