‘All decisions on natural gas must take the long view’

Israel should sell to its neighbors and establish sovereign wealth fund, experts say.

By SHARON UDASIN, CARA DORRIS
Tamar (photo credit: Courtesy)
Tamar
(photo credit: Courtesy)
Although the natural gas business is one of “unprecedented volatility,” governments must consider the impact down the line, experts agreed in a panel session on Thursday.
“Whereas oil is like dating, the gas business is like having a marriage – it really is a long-term business,” said Edward Chow, a Washington-based senior fellow at the Center for Strategic and International Studies’s Energy and National Security Program.
Chow spoke at the afternoon session on “The Land of Milk and Honey... and Natural Gas – Challenges and Opportunities,” at the Israeli Presidential Conference 2013 in Jerusalem.
From the United States, Israel and Norway, the experts discussed how Israel should proceed with its Mediterranean hydrocarbon finds, looking at export opportunities, geopolitical implications and financial security.
A day earlier, Prime Minister Binyamin Netanyahu announced that he would recommend to the cabinet on Sunday that 540 billion cubic meters of gas – approximately 60 percent of Israel’s estimated current reserves – be earmarked for domestic use, with the rest going to export.
Gideon Tadmor, CEO of Avner Oil Exploration and chairman of Delek Drilling – both companies developing the country’s two largest fields – argued that the potential to export large quantities of gas would allow Israel to become an “international energy player” and a “stabilizer in the region” by supplying gas to neighbors such as the Palestinian Authority, Jordan and Turkey.
Other panelists, however, said Israel’s gas would have no such effect.
It won’t change Israel’s geopolitical situation,” said Brenda Shaffer, an expert on energy policy at the School of Political Science of the University of Haifa.
Although there can be geopolitical value in sharing gas with its neighbors, Israel should not hope that by doing so it will be generating a kind of “peace pipeline,” Shaffer cautioned.
“Countries don’t get closer because of the incentive of oil and gas,” she told The Jerusalem Post following the panel session.
Extending gas pipelines to neighbors can lead to increased trade, but this “can also be a source of contention,” Shaffer explained.
Where geopolitical value can certainly be found, however, is by providing neighbors with a source of electricity, in a Middle East that still uses disruptive, expensive and dirty oil for its power, she said. By selling Jordan – and Syria and Lebanon through Jordan – natural gas, Israel could ensure that its neighbors gain a regular, reliable power supply, according to Shaffer. In addition, such a steady electricity supply would allow for the cheaper production of desalinated water, minimizing regional conflicts over the resource.
“The geopolitical value is not in using the energy as a weapon but in having prosperous neighbors,” Shaffer said. “If we want our neighbors to be stable and economically prosperous, they have to have a stable electricity supply.”
Because a national natural gas industry inevitably “takes a long time for maturation,” it is not yet possible to tell exactly where Israel will end up exporting its gas, aside from to its Palestinian and Jordanian neighbors, she said.
If the government chooses to not construct a liquefied natural gas export plant at home, it might find benefit in making use of the existing facility in Egypt, which is running at 40 percent capacity. Shaffer favors this option over using an LNG plant that may be constructed on Cyprus.
Israeli is unlikely to export gas to Turkey through a pipeline, she said.
“I don’t think that Turkey is really interested in importing the Israeli natural gas,” Shaffer said. “It’s a way to put a wedge between Cyprus and Israel.”
To maximize net revenue, lower transport costs make exporting to the immediate neighbors something Israel should seriously consider, Chow agreed. While oil responds to a global marketplace, gas is a “fundamentally different” business that responds only regionally, due to transportation economics, he said.
Although generating competition in the Israeli gas market can theoretically be a good tool for reducing prices, Shaffer warned that competition should only be viewed as a “tool” and not as a “goal” for the gas sector.
“If it can lower prices, increase production, it is good, but it is not a goal in itself,” she said. “Competition will never happen in this market. We don’t even have competition in banks, how are we going to have competition in two gas fields?”
No matter how Israel chooses to go forward with its exploration and its exports, Kjell Magne Bondevik, former prime minister of Norway, stressed it must maintain “a long-term perspective” on every step of the way. Ideally, Israel should emulate Norway in its decision to establish a sovereign wealth fund for petroleum, so that revenue from the hydrocarbon sector is set aside and allocated for specific purposes.
Within two months, the Knesset is set to discuss the approval of such a policy, to preserve resources for future generations as well as avoid a recession, Prof. Eytan Sheshinski of the Hebrew University said. The fund will invest abroad, and only under emergency circumstances will the government be able to borrow from it, he explained.
“These resources don’t only belong to our generations but must be administered in a way that must benefit future generations, which they belong to,” Bondevik said.
“Natural gas is limited, nonrenewable resources and should be exploited so.”