Israel's dilemma: Where to sell the east Med gas

July 18, 2013 at 11:45 AM
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TEL AVIV, Israel, July 18 (UPI) -- The Israeli government, rejoicing in the Jewish state's growing reserves of natural gas off its Mediterranean coast and the possibility of oil as well, is wrestling with the geopolitical ramifications this energy wealth has brought in its train.

The problem is whether to build a natural gas pipeline under the Mediterranean to Turkey to reach the European market, and risk antagonizing Russia which sees Europe as its turf, or go for liquefying the gas for shipping via the Red Sea to China and the high-value Asia market, and possibly annoy the United States.

As Israel stands on the brink of becoming a significant energy power in the region, lawmaker Isaac Herzog, chairman of the opposition Labor Party parliamentary group, observed: "This is a strategic turning point, which turns Israel from a resource-poor country ... into a country with important strategic national resources.

"The wise use of natural gas resources can contribute to national strength ... and change the geopolitical balance of regional power ... The gas fields are more than an economic resource, they are primarily a strategic resource.

"The Middle East has been undergoing dramatic changes in the past few years, and they are far from over," Herzog wrote in Globes, Israel's business daily.

"The U.S. has gradually withdrawn from policies of military and political intervention which characterized it in the previous decade, and its ability to influence regional governments is sharply waning.

"In this geopolitical climate, Israel needs new collaborations and stable alliances, and the gas fields could be an important part of this aspect, and be tangible fruits of peace with value among the nations that surround us."

Prime Minister Binyamin Netanyahu's government decided June 23 that 40 percent of the estimated 34 trillion cubic feet of natural gas so far discovered off Israel's coast should be earmarked for export.

The remaining 60 percent will use used domestically, largely for electricity generation. Using the East Med gas instead of costly oil imports will help transform Israel's economy over the next few years.

But not everyone's happy about the 40 percent cap on exports, particularly the energy companies that invested billions of dollars in exploration over the last five years and who want to maximize their returns as quickly as possible.

The government expects gas export earnings of up to $60 billion over 20 years.

But, in the 40 percent export cap is 13 percent lower that then 53 percent export quota proposed by a parliamentary committee set up the draft Israel's national energy policy.

The government trimmed that in apparent response to public opinion that opposes hefty exports. This could impede further investment in Israel's energy industry that is needed to continue exploration.

The U.S. Geological Survey reported in 2010 that the Levant Basin, encompassing Israel, Syria, Lebanon, Cyprus and the Gaza Strip, contains an estimated 122 trillion cubic feet of gas and some 1.7 billion barrels of oil.

Lebanon's waters are estimated to contain at least 25 tcf and Cyprus has made initial discoveries totaling an estimated 7 tcf, with much more likely to come. So Israel could come up with more sizeable discoveries in the next few years.

The LNG option and an export route to the Far East via an LNG plant in Israel's southern port of Eilat on the Red Sea, would be the most lucrative. But it would also involve highly expensive infrastructure.

There's considerable opposition to building an LNG plant at Eilat, a major tourist resort, but siting one there rather than on Israel's densely populated Mediterranean coast would mean bypassing the Suez Canal, and the risk that Egypt could close it down if relations with Israel become strained.

The gas pipeline to Turkey, on the other hand, is a relatively simple project and could be completed within two years to Turkey, the gateway to Europe's growing gas market. Israelis say the payback period for investors would be just two years.

The Americans, as far as is known, support the Israel-Turkey pipeline as it would bind two of U.S. regional allies together and could provide spin-off pipelines to Jordan and the West Bank, territories Washington wants to support.

But the downside is this would irk Moscow, which doesn't want Israel horning in on its lucrative European sales, and automatically opposes anything Washington supports.

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