Israel Targets Energy Superpower Status

Due Diligence: How to Evaluate a Renewable Energy Technology

First it was two major offshore natural gas field discoveries. Now it’s an ambitious plan to exploit Israel’s massive shale oil deposits in the Shfela Basin. The gas finds alone will make the country self-sufficient in natural gas for decades and debut Israel as a key regional energy exporter. The latter, if successful, would quite simply catapult Israel into the energy superpower league.

Not surprisingly domestic excitement over Israel’s prospective new energy status is palpable, with the state’s energy insiders barely able to contain themselves, and with good reason.

Levantine riches

Speaking at the CERAWeek conference in Houston in early March 2011, CEO Charles Davidson, chairman of Noble Energy which, with Israeli partners Delek Group and Ratio Oil, made the Tamar natural gas discovery, announced that the $3 billion investment in the Tamar field will supply the Israeli domestic market for decades. Currently appraised at 8.4 trillion cubic feet (Tcf) Tamar is expected to deliver its first sales in 2013.

But what really drew the attention of potential suitors for Israeli natural gas was the announcement of the discovery of the Leviathan natural gas field as 2011 dawned. Lying to the north-west of Tamar, Leviathan holds around a further 16 Tcf, almost all of which could be slated purely for export. According to businessman Yitzhak Tshuva, part owner of Leviathan, its gas too will be ready for production by 2013, well ahead of schedule. But even at a combined total of 25 Tcf, Tamar and Leviathan only represent around a fifth of the 122 Tcf the US Geological Survey estimates lies in the Levantine Basin, much of which falls within Israeli jurisdiction.

Just how Israel’s vast reserves are to be monetized is yet to be seen. Already a national debate is raging in Israel over the royalties from the revenue and taxes that petroleum firms should pay the state. In the few years since the state’s changeover from oil to gas powered electricity generating plants Israel is already believed to have saved around $5 billion in revenue. With the state’s unique geological position however, Israel’s options for selling the gas include Europe, China or even India. In terms of development, a partnership with Cyprus tying in its gas fields and co-operating on building subsea gas pipes makes sense. And Greece has proposed becoming a distribution hub for eastern Mediterranean gas throughout Europe.

As if the sudden emergence of Israel on the natural gas stage was not enough, however, a new plan to develop Israel’s significant shale oil and gas deposits south-west of Jerusalem could put Israel alongside the energy-rich super-elite.

Vinegar’s Oil Plan

Harold Vinegar, the former chief scientists of Royal Dutch Shell, has devised an ambitious plan that would, if successful, turn Israel into one of the world’s leading oil producers. Now chief scientist for Israel Energy Initiatives (IEI), Vinegar maintains that the 238 sq km Shefla Basin holds the world’s second largest shale deposits outside the United States, from which around 250 billion barrels of oil – about the same as Saudi Arabia’s proven reserves, could be extractable. IEI estimates the marginal cost of production at between US$35 and US$40 per barrel. That, says Vinegar, would be cheaper than the US$60 or so per barrel it would cost to extract crude oil in more hospitable locations such as the Arctic, and even favourably with the US$30-US$40 in Brazilian deepwater.

IEI, owned by the American telecom giant IDT Corp, anticipates starting commercial production by 2020, producing 50,000 barrels a day initially. While that figure is a fraction of the 270,000 barrels per day Israel currently consumes, Vinegar maintains it is a further key step toward achieving energy independence. Vinegar proposes thermal recovery for Israeli shale oil.

The IEI shale oil project has already attracted serious interest from investors. In November last year, Jacob Rothschild and media mogul Rupert Murdoch bought an $11million stake in Genie Oil and Gas, the division of IDC that is the parent company of IEI. Genie’s advisory board also includes former vice-president Dick Cheney and hedge fund investor Michael Steinhardt. But it seems development funding is likely to be no bar to the Shefla project. Vinegar states, “Funding is not needed for the pilot and demonstration, although once we are getting 50,000 barrels per day, we would want to have a partner. We have been approached by all the majors.”

Not that it’s likely to be all plain sailing for the Shefla shale development. The size of the geological resource still needs to be confirmed. Environmental concerns and issues over whether the technology will work in situ also need to be addressed. But when it comes to the commercial long-term viability of the project, Vinegar believes it is validated, predicting, “the price of oil is going to continue rising” and “by 2030, will be around $200 per barrel.”

Land of energy promise

All of which could amount to a significant geopolitical power shift for the troubled wider region. First and foremost the clutch of new gas and oil initiatives would secure Israel’s longer-term energy security. Second, the social upheaval of neighboring, energy-producing, Arab states may also soon find governments in the West embarking on their own domestic shale revolutions – becoming less energy-dependent on Middle East oil and gas. For Israel, it would also mean there could be no repeat of the economic ransom to which the country was held in the 1970s when a pan-Arab energy embargo forced Israel to turn to the expensive and unpredictable international energy market.

The full extent of Israel’s subsea natural gas and onshore shale oil deposits will likely be confirmed over the coming year. But the old joke that Moses got it wrong, turning left and settling for ‘milk and honey’ instead of turning right and getting the oil, is already redundant. Israel is looking every bit a land of energy promise after all.

© 2013 Energy Tribune

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