Dependent no more: Israel has gas

Israel's economy is beginning to digest the news of the discoveries at the Tamar and Dalit off-coast exploration sites, which could make Israel a major regional player in the natural gas market.

The local energy sector has been swept by euphoria. It all began late in the evening on January 11, when local companies Dor Energy, Avner Oil Exploration, Isramco and Dor Gas received a formal announcement from their American partner, Noble Energy. It began: "There's Gas".

Preliminary signs were found 4,900 meters below sea level at the Tamar site, 90 kilometers off the coast of Haifa. A week later the partners announced potential reserves of about 3.1 trillion cubic feet, "the largest find in the history of Noble Energy," as CEO Charles Davidson said. Test drilling in February increased that estimate beyond 5 trillion cubic feet, with press reports saying that that number, too, was conservative.

Shortly after that exploratory drilling began at Dalit 1, 40 kilometers southeast of Tamar and 60 kilometers offshore. Preliminary signs of natural gas were found on March 29, followed three weeks later by the announcement that an additional 500 billion cubic feet of natural had been found.

"This is a day of celebration for all Israelis," Yitzhak Tshuva, proclaimed Delek Group controlling shareholder. It was two weeks before Israel's 61st Independence Day, giving new meaning to the word "independence."

Israel's electricity is produced from coal (42%), natural gas (26%), diesel fuel (27%) and crude oil (5%). Within about a year the share of natural gas is expected to rise to 40%.

From 2014 to 2018 demand for natural gas is expected to reach nine billion cubic meters to 10 billion cubic meters a year, mostly for electricity production. By 2030 consumption is expected to be as much as 240 billion cubic meters. Where will it come from?

In 2000 the Yam Thetis partnership (Delek Group and Noble Energy) discovered an estimated 36 billion cubic meters of gas offshore from Ashkelon. It has been supplying the local market since 2004, and will be depleted within a couple of years. In 1999, British Gas discovered reserves of 28 billion cubic meters offshore from Gaza. As a result of political, commercial and regulatory delays the find has not been exploited, a situation that is not expected to change in the foreseeable future.

A 2005 agreement with Egypt was to provide Israel with 7 billion cubic meters of gas a year for 20 years, but the supply began only in May 2008, and even then only partially, amid technical and political difficulties.

The new discoveries could therefore save Israel from serious natural gas shortages beginning in 2012 and the continued use of dirtier fuel sources while building, at great cost, the infrastructure needed in order to import liquefied natural gas. They could save Israel from depending on BG, the Palestinian Authority and Egypt, with their associated political, military and economic implications.

But we must also face the realities of gas production, and quickly. The price tag is at least $2 billion, and there are other problems: ever-changing regulations; cumbersome bureaucracy; the slow, land-based delivery infrastructure; and the fact that the main local customer is Israel Electric Corp., itself facing financial difficulties. The partners in Tamar and Dalit may discover that finding gas under the sea is nothing compared to bringing it to shore.

The story of Tamar

In 1998 Isramco sought the help of geologist Yossi Langotsky in finding a strategic partner for petroleum exploration in the Mediterranean. He knocked on the doors of about 100 companies around the world, trying to sell his theories about the existence of gas and oil deposits under the seabed, and after a year the energy giant British Gas answered the call.

BG had gained a foothold in the natural gas fields of Egypt and was persuaded of the potential for fields off the Israeli coast. After partnering with several local companies BG received a permit to search over 12,000 square kilometers of seabed, which they reduced to three small areas.

One of these was named for Langotsky's granddaughter Tamar.

By 2002 the Tamar site was ready for drilling, after an investment of $17 million. But then the partnership was hit by upheavals, with partners arriving and leaving. BG reduced its stake and in April 2005 it announced it was pulling out of the drilling project. It was thought that BG believed that it could produce gas more quickly from the Gaza Marine field and preferred to avoid the political and economic issues that its involvement in Israel could create.

Isramco was back in the saddle, but in the light of the inadequate ownership structure, the project seemed in danger of being buried. Langotsky and the company resumed their worldwide search for an experienced partner, and were again met with the response, "We don't do business with Israel." In the end, for lack of another option, they asked Yam-Thetis, their competitor, to join the project. Delek Drilling and Avner stepped into BG's shoes, and after a few months of persuasion Noble joined as drilling operator.