Political-Strategic Dimensions to Israel's Natural Gas Debate
INSS Insight No. 429, May 23, 2013
Eran, Oded

http://www.inss.org.il/publications.php?cat=21&incat=&read=11496

In October 2011, the Israeli government appointed a committee headed by
Water and Energy Ministry director general Shaul Tzemach to examine the
government’s policy on natural gas. The government is supposed to adopt the
committee’s recommendations, which were published in April 2012, immediately
upon completion of the budget deliberations. On May 13, 2013, however,
Knesset Finance Committee chairman Avishai Braverman stated that the Knesset
would decide on the future of the recommendations – in particular, how much
gas will be reserved for local use and how much will be available for
export: since the Knesset was mandated to determine the royalties the state
will collect on revenues from the sale of natural gas, so, MK Braverman
contends, should it decide related aspects. The debate on the issue has
heated up, and some who argue against export (of even a small percentage of
the gas), because they believe it would harm the Israeli consumer, are
currently demonstrating outside the homes of those directly involved in the
issue.

How much gas to retain for domestic consumption and how much to export has
political-economic and strategic ramifications. There is no argument about
the fact that Israel is a special case in terms of energy security, and that
it must maintain independence in the supply of a strategic resource such as
natural gas – even though Israel has never enjoyed such independence, and
conversely, even though Israel has never experienced any crisis in meeting
its energy needs.

The Tzemach Committee looked at a period of twenty-five years. After
examining a number of consumption scenarios, it recommended the one in which
Israel’s cumulative consumption up to 2040 would reach 450 billion cubic
meters. According to estimates by the US Geological Survey, the quantities
of recoverable gas in the area in which Israel has exclusive economic rights
come to 1.4 trillion cubic meters. However, the committee was conservative,
and calculated the total amount that could be considered recoverable to be
950 billion cubic meters. Accordingly, the committee recommended a 50-50
ratio between domestic consumption and export.

In the public debate too little attention has been paid to the
political-economic and strategic aspects. Some of these are difficult to
calculate, and hence it is hard to assess their benefit. Another problem
involves the different timetables. The Tzemach Committee gave clear priority
to ensuring that the Israeli economy’s natural gas needs are fully
preserved, and made export conditional on fulfilling these needs. This
process will continue for several years, and it is dependent on both the
discovery and the utilization of gas reservoirs. However, immediate export
would have strategic and economic advantages, for example, realizing the
Committee's conviction that export is necessary in order to obtain the
essential financing for developing the gas fields and the associated
infrastructures. The recommendation to allow export only after there is
complete confidence that there will be accessible gas above 450 billion
cubic meters could complicate obtaining outside financing for the periods of
time associated with the investments.

Several other issues should be noted. Gas deposits in the Mediterranean are
spread over the Exclusive Economic Zones of several countries: Egypt,
Israel, Lebanon, Cyprus, and possibly Syria as well. It is nearly certain
that there is natural gas in the maritime space of Gaza. The costs of
building the infrastructures for exporting natural gas are enormous, and
they invite regional cooperation. While it is difficult to expect direct
cooperation in the current political circumstances in the region, it might
be possible through third countries and companies. However, these would take
the risks involved only if the amounts of available gas for export justified
the risks.

Cooperation, even indirect, with other gas exporters in the region increases
the regional players’ interest in stability. Even sub-state actors such as
Hamas and Hizbollah would be interested in this stability to ensure the flow
of revenues that Lebanon and Gaza would enjoy if they developed the gas in
their Exclusive Economic Zones. Although difficult, third countries and
companies could theoretically aid in mediating between states that do not
have relations with each other, but they would require agreed-upon
management and use of joint reservoirs that cross borders. Such utilization
of resources generally requires agreements between the states that have
rights to the reservoirs.

Israel’s immediate neighbors, particularly Jordan and the Palestinian
Authority, need a supply of gas. Jordan’s situation has worsened for the
same reason that Israel’s has been harmed, that is, the frequent sabotaging
of gas pipelines in the Sinai. The difficulties in supplying energy have
leveled significant pressure on the Jordanian economy, which faces enormous
difficulties as a result of the need to handle half a million registered
Syrian refugees and perhaps a similar number of unregistered refugees. The
Jordanian Ministry of Energy expects consumption of 4.5 billion cubic meters
in 2015, and amounts of this magnitude would not substantially alter the
Tzamach committee’s considerations. Jordan can be connected to Israel’s gas
transmission networks in two locations – south of the Sea of Galilee and in
the industrial region at the Dead Sea, and this could be implemented
quickly. It has been postponed in part due to a delay in adopting the
Tzemach Committee’s recommendations and a lack of clarity concerning export
of gas.

Connecting Israel to its neighbors through water, energy, communication, and
transportation networks has greater strategic value than certain other
elements of the normalization proposed to Israel in the Arab Peace
Initiative. Such connections create a mutual balance of interests that
opponents of normalization cannot ignore. Therefore, the government of
Israel, with the approval of the Knesset, ought to act now to exclude the
supply of natural gas to neighboring countries from the overall discussion
of the domestic consumption to export ratio. Gas could be supplied to the
Palestinians in the future, for example, in exchange for the gas that Israel
would receive from the gas reservoir in the Gaza maritime space.

Israel has several potential markets for its natural gas beyond the small
regional markets, including China, India, Turkey, and Europe, and the
political component must be considered along with the economic dimension.
Export of gas to each of these destinations could improve Israel’s
international standing, even though the quantities are small compared to
consumption of natural gas in these potential markets. Furthermore,
exporting to the east or exporting to the west could create regional
cooperation in the field of gas transportation.

As far as cooperation on natural gas is concerned, Turkey is an enigma at
this point, both as a large consumer and in terms of transporting gas to
Europe. In spite of pronouncements by Turkish leaders that they will not
cooperate with Israel in this domain, an internal discussion in an
inter-ministry body could be held in order to examine all aspects of
bilateral energy cooperation.

While it is difficult to quantify these strategic benefits, it is clear that
they will not be realized without the prospect of significant export.
Although the argument here is not to overrule the committee’s basic
assumptions, it would be appropriate to draft a long term plan to provide
the Israeli consumer with energy security and a supply of natural gas and to
allow exports to be utilized to improve Israel’s strategic balance. Global
commerce in natural gas involves commitments for 15-25 years, and the longer
Israel delays making decisions about exports and the quantities to be
exported, the more likely it is to find markets that are saturated or
consumers that seek to buy at lower prices. In the time periods the
committee discussed, that is, twenty-five years or more, far reaching
changes may take place in the field of energy, sources of energy, and
utilization of energy. Changes such as these could also affect the ability
to realize possible gains from export of natural gas in a ten-year period.

What is needed is a tool that allows ongoing updating and calibration of
local and global market conditions; a determination of the necessary level
of energy security for longer periods of time than twenty-five years; and
calculation of political and economic situations so that gas export can be
leveraged for strategic gains for Israel.
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