Making the desert boom

However great the economic impact of Israel’s energy sector transformation will be, the interdependent geopolitical consequences look even more astonishing.

By NICHOLAS SAIDEL, HARVEY RUBIN
February 27, 2012 22:59
An aerial view of shale oil drilling rig SAI-307

An aerial view of the shale oil drilling rig SAI-307 390. (photo credit: REUTERS)

 
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We are now witnessing a transformation of the energy landscape of Israel. In the short term, Israel is actually suffering from an energy shortage. Warnings of blackouts and higher electricity rates are the result of recent attacks on the natural gas pipeline between Egypt and Israel, as well as the unexpected decline in production from Israel’s sole existing domestic off-shore gas site, known as the Mary B field.

Notwithstanding the current energy crunch, Israel is poised to become energy independent and a net energy exporter within this decade in light of significant discoveries of both off-shore natural gas reserves and onshore deposits of shale oil.

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Some quick statistics: The Tamar, Leviathan and Tanin 1 natural gas fields, located off the coast of Haifa, together account for around 730 billion cubic meters of gas. Israel consumes only 3.25 billion cubic meters of gas per year, so these reserves will eventually negate the need to import natural gas and potentially allow for exporting large quantities of this energy source (experts estimate approximately $3 billion a year in added revenue).

Furthermore, these discoveries will drastically reduce the need to import coal – a CO2 emitting fossil fuel Israel currently relies on to generate 40 percent of its electricity.

Shale deposits deep under the surface of Israel could potentially dwarf these abundant natural gas discoveries.

Exploration conducted by Israel Energy Initiatives (IEI), revealed that Israel could be sitting on vast shale oil reserves, approximately 250 billion barrels of oil, third only to the United States and perhaps China. Comparatively, Saudi Arabia has proven reserves of about 260 billion barrels. Israel consumes around 100 million barrels of oil a year (imported mostly from Russia and former Soviet states), accounting for around 50% of its primary energy consumption. If IEI’s bold project comes to fruition, by 2020, Israel could be extracting some 50,000 barrels per day (bpd), around 1/6th of its daily imports at 282,000 bpd.

While these discoveries – especially with respect to the shale oil – present profound environmental, health, security, feasibility and cost hurdles, large energy consuming states such as China and India have already begun to court Israel in an effort to diversify their energy portfolios and meet the growing energy demands of their economies. Israel, for its part, has responded to Asian overtures with a bold plan, approved unanimously this week by the Israeli cabinet, to build the first railway between its Mediterranean and Red Sea coasts. This so-called “Med-Red” railway would create an alternative to Egypt’s Suez Canal, effectively creating a new land bridge between Europe and Asia. This concept is especially attractive given Egypt’s current instability and opaque future, as well as the possible closure of the Straits of Hormuz.

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For Israel, it’s not only about the billions of dollars in additional revenue – the strategic value of hosting such a vital commercial route is just as, if not more, significant.

China has signaled a willingness to invest in the Med-Red project. With this intertwining of the Chinese and Israeli economies, we may see a shift of Chinese policy in the Middle East – a more balanced diplomacy that takes into account not only China’s Gulf and Iranian interests, but those of Israel as well. Such a policy shift could have repercussions on the UN Security Council – where critical Chinese votes against Israeli interests have become the norm rather than the exception.

Energy security, new revenue streams, and the upgrade of relations with emerging global powers such as China and India couldn’t come at a better time for Israel. The traditional list of allies of Israel has grown thin – a consequence of the Arab Spring, strategic policy shifts in Turkey, and growing resentment within Europe over perceived obstructionism by the Netanyahu-led government.

As Israel’s economy grows due to these energy sector discoveries, so too will its resilience to anti-Israel efforts such as the Boycott, Divestment and Sanction (BDS) campaign.

As for the United States, the historic interlocutor for peace in the Middle East, financial and security interests dictate a continued presence in the region for the foreseeable future. However, the United States has its own energy independence goals, as stated most recently in President Barack Obama’s State of the Union Address where he emphatically called for an “American-made energy” industry. As America invests in its own oil, natural gas and shale reserves, it will become less dependent on Middle East oil. In fact, it’s already happening: President Obama declared that last year the US relied less on foreign oil than in any of the past 16 years.

The American public, not to mention the US Treasury, is drained from two long wars in Iraq and Afghanistan.

As we have seen in Libya and with the inclusion of the Middle East Quartet in Israeli-Palestinian negotiations, the United States is becoming more comfortable “leading from behind,” receding somewhat from its previously dominant position in order to get its financial house in order. As incentives decrease for costly Middle- Eastern entanglements, the US-Israel alliance could see a waning as well.

If the US eventually retreats from the forefront of the Arab-Israeli conflict, it seems China is situated to fill that void. China is a vocal supporter of the two-state solution, but maintains “pro-Palestinian” positions with respect to east Jerusalem, Israeli settlement expansion and Palestine’s UN membership bid. These positions, while controversial, would help energize the perpetually stalled peace talks. American failures to broker a peace deal have been blamed by some on its inability to neutrally arbitrate and its unwillingness to put the appropriate pressure on its ally Israel. A Chinese-led effort would ameliorate these concerns and give the peace process a much needed fresh start. Also, China has far more influence over Iran than does the US (China-Iran trade is a booming $45 billion), so any Chinese- brokered peace deal would likely be more comprehensive than anything the US could offer – a boon to Israel.

However great the economic impact of Israel’s energy sector transformation will be, the interdependent geopolitical consequences look even more astonishing.

Nicholas Saidel received his law degree from Georgetown University and his Master’s Degree in Islamic and Middle Eastern Studies from the Hebrew University of Jerusalem. He is associate director of the Institute for Strategic Threat Analysis & Response (ISTAR) at the University of Pennsylvania. Harvey Rubin, M.D., PhD., is a Professor of Medicine and Computer Science at the University of Pennsylvania and founder and director of ISTAR.

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