January 11, 2011
The Middle East is long synonymous with oil production. But the region will soon have a new power broker and one that specializes in finding natural gas: Israel.
Last month, Texas-based Noble Energy and its Israeli partners discovered the world's largest natural gas deposit in 10 years that is roughly 80 miles off the shores of Haifa, Israel. Leviathan, as it known and which is said to 16 trillion cubic feet of natural gas, could at least allow the small nation to replace much of its oil-and- coal- based electric generation with that of the cleaner burning natural gas.
Production could begin in 2017. If the estimates are correct, enough gas exists there to last 100 years. It's about self-reliance: Nations that can feed their own energy demand while importing less are operating from a position of strength. The find, furthermore, helps the country insulate itself from fluctuating international fuel prices.
"Leviathan is the latest major discovery for Noble Energy and is easily the largest exploration discovery in our history," says Charles Davidson, Noble Energy's chief executive. "In the past two years, we and our partners have made three significant natural gas discoveries in the Levantine basin."
And that may be what makes this discovery so valuable not just for Israel but also for Eastern and Western Europe. Russia, of course, has long been the dominant supplier to those regions. But Russia's state-owned Gazprom has come under fire in recent years for "unfairly" using its economic and energy leverage, giving Western Europe pause. Israel is therefore in a position to become an exporter of natural gas.
That may be a stretch for now. Unlike international oil prices, natural gas is now abundant and cheap. Ample amounts of liquefied natural gas that is transported via ship from such producing nations as Russia and Qatar are helping keep prices low. Meantime, the United States is mining for shale gas that can keep the lights on here for decades to come. Prices in this country are down by 36 percent from a year ago.
Israel's current emphasis is on meeting local demand but in the future, the focus could be on exporting its resources. The U.S. Geological Survey is predicting that more than 120 trillion cubic feet of recoverable natural gas lay beneath the Eastern Mediterranean. According to news reports, that is on par with the Alaskan North Slope.
Already, Noble and its Israeli partner, Delek Energy, have found gas-rich deposits in nearby Tamar. That site was the world's biggest gas discovery in 2009 and is said to contain 8.4 trillion cubic feet. Production of that region is set to begin in 2013.
Energy Transition
The promise of more gas is prompting governments to assess their energy practices. The Israeli government is now re-evaluating how it taxes producers. Other nations such as Lebanon and Syria, meantime, are considering whether to delve offshore for resources. All of the potential development would be reliant on foreign capital, which is why the hosting nations must get their tax treatment right.
According to the Organization for Economic Development, the "profit tax" on such producers averages 62 percent, although Noble and Delek have said that if Israel raises its taxes that high, the gas will stay put. Israel is pondering a proposal to double its profit tax to around 55 percent, something the developers have called "unacceptable."
That debate is now ongoing. One of the factors that will be considered is Israel's current move to build a dozen new natural gas-fired generators. Beyond that, it has a longer-term goal of replacing many of its coal-and-oil-fired generators that are much dirtier.
At the same time, some technical snafus have tripped up natural gas shipments from neighboring Egypt while high contractual prices for both oil and coal from trading partners Australia, Mexico, Norway and South Africa are also problematic. With those dynamics at play, Leviathan is a most welcome development.
Electricity production in Israel is responsible for a large percentage of harmful pollutants there. As such, the Israel Electric Corp. has instituted measures to curb such emissions despite the need for more power. Not only do the plans include implementing more natural gas but also using low-sulfur coal and oil. At the same time, it is working hard to advance its green movement, especially solar and wind.
To this point, Israel has an installed electric generation capacity of 11,300 megawatts. Coal represents 70 percent of that while natural gas makes up 20 percent. Oil-fueled power comprises the balance. Even before the Leviathan find, the plans were to replace the coal-and-oil-fired generation with natural gas.
"If it acts correctly, levelheadedly and responsibly, Israel can enjoy not only the benefit of using the gas, but it can also turn into a gas supplier in the Mediterranean region," says Israel's Minister of National Infrastructure Uzi Landau, in a statement. "The large reserves of natural gas will enable Israel's citizens to enjoy the benefit of clean and inexpensive electricity, as well as the expected profits for the state."
Globally, natural gas markets are weak right now. That means Israel's new fortunes will likely be spent at home - to make the changeover from highly polluting fuels to those that are substantially cleaner. As recession lifts and the demand for energy resumes, the country could also become a reliable exporter.
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Ken Silverstein
EnergyBiz Insider
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