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    The Energy Island: Israel Deals with its Natural Gas Discoveries

Summary

Brookings' paper "The energy island: Israel deals with its natural gas discoveries" highlights Israel's challenges in its path towards energy production.

by: Karen Ayat

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The Energy Island: Israel Deals with its Natural Gas Discoveries

In a paper published by Brookings on 19 February 2015 and entitled The energy island: Israel deals with its natural gas discoveries, the authors Natan Sachs and Tim Boersma highlight the challenges Israel is facing in its path towards becoming a net natural gas exporter. Since its discovery of large offshore natural gas fields in its Exclusive Economic Zone, Israel has been struggling with domestic policy debates and with the complicated geopolitical landscape that makes of Israel an energy island. Despite the substantial size of its discoveries, Leviathan estimated at 22 Tcf and Tamar believed to hold around 10 Tcf of gas, enough to secure Israel’s domestic demand for decades and allow its entry into the export market, the country has faced serious regulatory and political challenges.

Israel was historically reliant on imports to satisfy most of its natural gas demand. Egypt was Israel’s main supplier of natural gas before the relationship deteriorated in the aftermath of the Arab Spring in 2011. The large deposits of natural gas under Israel’s seabed are likely to render Israel self-sufficient in terms of its natural gas needs for decades to come and improve its relationship with its neighbours. Jordan, Egypt and the Palestinian Authority are potential customers given that they are all undergoing severe energy crises at home. Since the disruption in the flow of Egyptian gas, Jordan has been heavily reliant on imports to alleviate domestic needs. Egypt’s growing domestic demand and its declining production have also turned the once energy-exporter into an importer of gas and the country is now considering gas imports from Israel and Cyprus. The Palestinians also rely on Israel despite the discovery of the Gaza Marine field by BG in 2000, a field believed to hold 1 Tcf of gas but that remains untapped to this day.

The most recent regulatory hurdle facing Israel is the dispute between its Antitrust Authority and the partners in Israel’s largest fields Leviathan and Tamar. Israel’s competition regulator has come back on a previous agreement that would have allowed the partners to retain their stakes in the fields as long as they sold their shares in smaller fields in an attempt to ensure a fair market. However, fearing a lack of competition in the domestic natural gas market, the regulator qualified Delek and Noble’s partnership as constituting a cartel, a decision that could mean breaking up the monopoly. The dispute has led many to believe that Leviathan’s production will be delayed beyond 2018 and that future investors may be deterred from participating in Israel’s future gas explorations due to the climate of regulatory uncertainty. Regional deals may also be jeopardized by the delay. Brookings’ paper stresses on the need for a proper regulation to avoid the problems associated with the monopoly, such as high prices that would affect both industry and consumers throughout the Israeli economy for decades to come.

Brookings’ paper highlights a previous debate that has divided the country. In 2013, policymakers were divided as to whether Israel should allow gas exports or retain the findings for domestic consumption. A history of heavy reliance on imports and Israel’s strained relationships with nearly all of its neighbours would have justified, to some, its decision to ban gas exports in order to secure its gas needs for generations to come. But the need to give investors incentives to search of gas in Israel’s waters as well as the considerable revenues that could be generated from gas sales have led the Israeli cabinet to decide in June 2013 to allow the export of around 40% of the gas discovered, a decision ratified by Israel’s Supreme Court in October of the same year.

The pending maritime dispute between Lebanon and Israel has also raised security concerns. Brookings’ paper discusses the need to secure the energy facilities along the Israeli coast, particularly given the volatility in the region. The report adds that new platforms to guard maritime facilities are needed. The paper also covers the lack of proper regulation protecting the environment from the new discoveries and the urgent need for its development to avoid the long term environmental ramifications of offshore facilities.

The main takeaways of the paper are the significant potential of the new discoveries on Israel’s energy outlook, its economy and its relationships with its neighbours. The paper also highlights the complex regional landscape that might stand in the way of effective cooperation and the need to resolve domestic debates to allow for regional dialogues. The conclusion is the need to achieve a predictable and stable domestic climate that would allow Israel and its neighbours to improve diplomatic ties and benefit from the hydrocarbon wealth.

The full report can be accessed here: http://www.brookings.edu/~/media/Research/Files/Papers/2015/02/eastern-mediterranean-papers/israel-energy-island-natural-gas/Energy-Island-web.pdf?la=en

Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat