Israel's Pipe Dreams

Unlike oil, natural gas requires long-term strategic planning between companies and states, and a significant dose of trust.

Israel's natural gas (photo credit: MINISTRY OF NATIONAL INFRASTRUCTURES)
Israel's natural gas
Since 2009, conversation surrounding the massive hydrocarbon fields Tamar and Leviathan focused on two core questions: how to distribute the gas between domestic and foreign markets, and how to ensure that the profits were enjoyed by future Israeli generations.
Monopolization of the energy industry by its two core companies, US-based Noble Energy and the Delek Group, was seemingly a side issue.
However, with the December 23 announcement by the Antitrust Authority that Noble and Delek must dissolve their monopoly of Israel’s gas supply, not only must the highly anticipated distribution of gas to the Israeli public be put on hold, but export to foreign markets must be postponed as well. Both of these two issues could have far-reaching political ramifications.
Noble Energy is a crucial player in the Eastern Mediterranean, and despite a myriad of geopolitical challenges the American company assumed a leading role in the discovery of hydrocarbons in the Levant basin. Noble clearly intended on finding a joint strategy for both Israeli and Cypriot offshore gas, which would serve both their domestic needs and potentially reach a European market desperate to find alternatives to Russian energy.
After several years of lockstep partnership with the Israeli government, Noble is threatening to reconsider its stake in Israeli energy. Bini Zomer, Noble’s director of corporate affairs in Israel, told Channel 2 that the Antitrust Authority’s decision “casts a dark shadow on the future of the gas and oil industry in Israel and will affect Noble Energy’s investments in the country.”
What does this mean? Gal Luft of the Institute for the Analysis of Global Security explains that turning its back on Noble is a major risk for Israel’s energy prospects. Rumored to having been mistreated by Israel’s flawed bureaucratic system, if Noble is forced to walk away from its multi-billion dollar investment, it will be difficult for other companies to consider approaching the Israeli market.
Noble could also cause future headaches if and when Israel and Cyprus attempt to deliver gas to the European market via a pipeline. In fact, Noble could propose a more economical Cyprus to Europe pipeline that excludes Israel entirely.
Not only would this impact Israel-Cyprus relations, which have experienced a dramatic upswing since the discovery of offshore gas, but it could also conceivably draw Israel and Turkey back together.
The decision could additionally impact agreements Israel has made with Jordan ($15 billion), the Palestinian Authority ($1.2b.) and Egypt ($500 million-700 million), all of whom are starved for gas, and resisted significant Islamist opposition in order to secure Israel’s energy reserves. A delay in the arrival of affordable energy could damage the credibility of those governments in the eyes of their respective publics.
More importantly, Noble’s early exit from the Israeli energy scene will create a vacuum in the energy industry. As one of the few oil and gas companies capable of drilling in deep waters, Noble was unique in that it shared multiple interests, both financial and strategic, with Israel. Who would replace Noble? What would their underlying interests be? If, for the sake of argument, a number of smaller, less significant companies replaced Noble, what extra baggage would Israel then be forced to shoulder? Would it force the termination of Israel’s grander regional energy dreams? There is an abundance of valid arguments against energy monopolization, but the Antitrust Authority’s decision has made maximizing the economic and diplomatic potential of natural gas far more difficult. Now, Israel faces the end of its energy honeymoon.
Unlike oil, natural gas requires long-term strategic planning between companies and states, and a significant dose of trust. It demands an understanding of the domestic and regional implications if there are bumps along the way.
What the recent ruling shows is that Israel’s leadership has once again failed to think long term. If it was not interested in engaging in an exclusive relationship with Noble Energy, it should have considered the alternatives many years ago. Failure to find an agreeable settlement that allows Noble to continue playing a central role in the extraction of Tamar and Leviathan will set off tremors with unforeseen consequences. For this reason and others, it is imperative that a resolution is reached as soon as possible.
The author is a PhD candidate in Government & International Relations at Virginia Tech University and the Israel-Turkey Project Coordinator for Mitvim – The Israeli Institute for Regional Foreign Policies. @GabiMitch