Lessons of Israel’s Natural Gas

The flow of natural gas from the Tamar offshore field exemplifies the potential fruits of a partnership between the state and private entrepreneurship, but also its risks.

The Festival of Freedom, as Passover is sometimes called, this year blessed Israelis with the transition to an era of energy independence with cheap, clean fuel. For decades Israel failed to find the natural-gas reserves with which it is blessed, until experienced private firms stepped in to fill the state’s shoes. Thanks to their accumulated experience, their capital and the risks they took, these companies not only tracked down the potential hidden beneath the seabed but also realized it in a highly professional manner so that it could swiftly begin to meet the demands of the Israeli economy.

The flow of natural gas from the Tamar offshore field exemplifies the potential fruits of a partnership between the state and capital- and knowledge-intensive private entrepreneurship can produce, but also its risks. In effect Israel entrusted the source of its economic life-blood for decades to come to a single business group, going from dependence on foreign energy sources to a reliance on a homegrown resource that is held by a private entity with foreign − and outside − interests of its own.

Israel’s aspirations to reduce electricity costs, to guarantee its citizens a proper share in the profits from selling the gas and to leverage the natural-gas discoveries for geopolitical benefit will all run up against the wall of cold business calculations of the private partnerships in the Tamar field and will necessitate the cooking up of secret deals with them or the waging of difficult public and legal wars.

These circumstances are the result of ill-considered transfer of mineral production rights from the state to private companies. This was done out of the understanding, justified it must be said, that only the private sector had the necessary expertise for the enterprise − but without examining the economy-wide implications.

Israel will struggle to turn back the clock when it comes to this new dependence in the natural-gas market, but the lesson should be learned with regard to the issues that have been laid at the government’s door, from the approval of the sale of potash-mining rights in the Dead Sea to Canada’s Potash Corporation of Saskatchewan to the sale of new seawater-desalination and private electricity-generation permits and up to the transfer of toll-collection rights on new highways.

There is nothing wrong with private-public partnerships for economic development. But the transfer in exchange of rights to natural resources and national assets require the utmost caution and attention in order to guarantee the public interest also on the day after the partnership has been crowned a success.

Off Haifa coast, oil rig at enormous Leviathan natural gas field.
Albatross