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Israel natural gas exportation: The potential economic and geopolitical impacts

The Israeli gas rig Tamar, situated off Israel's northern coast. Credit: Albatross Aerial photography/Nobel Energy/Flash90.
The Israeli gas rig Tamar, situated off Israel's northern coast. Credit: Albatross Aerial photography/Nobel Energy/Flash90.

Israel recently crossed a major energy milestone when the daily supply of natural gas began flowing from the Tamar offshore reserve—gas that is expected to power Israel’s electricity production for the coming decades.

But while the domestic use of Israel’s natural gas makes the country less dependent on foreign energy than ever before, it is the export of natural gas that has the potential to boost Israel’s economy and change Israel’s strategic position in the global marketplace. An even larger natural gas reserve, Leviathan, is expected to begin supplying energy in 2015.

According to industry experts, export revenues will provide a boom to Israel’s economy, as well as offset the tremendous costs of developing the infrastructure needed to extract and transport the natural gas from the sea to Israel’s electricity plants.

“The infrastructure is financed by consumption agreements,” Delphi Global Analysis founder David Wurmser, who consults for one of the major energy firms invested in the Leviathan basin, told

“Investors will not spend billions of dollars developing an infrastructure for money to be returned in 20 to 30 years,” he said. “The timeframe needs to be much shorter than that.”

Currently, Israel is considering exporting natural gas to Western European nations along the Mediterranean Sea, including Spain, France and Italy, which are currently supplied with gas by North Africa.

If Europe were suddenly to lose its supply of North African gas due to regional instability, nations may desperately seek to sign an agreement with Israel.

If that happens, Israel would then have “great leverage to demand European Union subsidies for creating infrastructure,” Wurmser said. “But right now, while the Europeans understand their vulnerability, their demand is basically satisfied,” he said.

But Israel supplying natural gas to Europe may raise a major red flag for Russia, the primary supplier of natural gas in Eastern Europe.

“Europe is an integrated gas network. The closer you get to Eastern Europe, the more nervous the Russians get. They have a chicken in this fight—even in Southern Europe,” Wurmser said.

Almost a year ago, Russian President Vladimir Putin made a historic trip to Israel, and brought a large economic delegation. According to Wurmser, a significant portion of the visit had to do with natural gas. Putin likely expressed his concerns regarding Israeli intentions to export, in addition to examining the possibilities for joint marketing opportunities.

“Russia is looking with great sensitivity at everything going down in the Eastern Mediterranean—from Turkey to Greece to Cypress to Lebanon. Russia has defined the Eastern Mediterranean as a significant production zone, and Israel stands at the center of it. So you can count on the fact that the Russians were trying to figure out what piece of this pie they can get from Israel,” Wurmser said.

Asia could emerge as a more likely option for Israeli gas exports due to what Wurmser calls “acute natural gas shortages” on that continent.

“Asia does not have all the supplies of gas it will need in 5-10 years accounted for. Europe does,” he said.

According to Wurmser, creating an export channel to Asia has the potential to open up a new parallel trade route that can impact Israel’s greater strategic position. The gas sitting off of Israel’s coast in the Mediterranean would need to be transferred to Israel’s southern coast in the Red Sea, then liquefied just south of Eilat and shipped to Asia.

“If the export goes to Asia, the question is whether the gas may begin to anchor the economic development of the Eilat-Ashkelon corridor in such a way that it drives

other economic development, and the transportation links that really begin to challenge the Suez Canal,” Wurmser said.

“In addition to natural gas, you could have an oil pipeline; you could have high-speed cargo offloading-onloading terminals,” he added. “The way it works with hi-tech, you can get cargo on ships and off ships very rapidly, with rail link transportation to Eilat, then back on ships to Asia. It is much cheaper than taking it around Africa.”

The importance of developing an alternate channel has to do with the economic and political uncertainty surrounding the Suez Canal in the coming years. Travel through the canal, which has been reliable over the last three decades, may no longer be feasible if Egypt fails to maintain the conditions necessary for safe transport.

Since the Muslim Brotherhood takeover from Egypt, natural gas supply from Sinai to Israel—as mandated by the 1979 Israel-Egypt peace treaty—has ceased to flow, a possible indication of what could occur in the Suez Canal.

“Travel through the canal like all political infrastructure links right now, can be threatened because it is held hostage to the instability of the Arab World,” Wurmser said. “Furthermore, the canal needs maintenance that costs a lot of money. The Egyptian government doesn’t have a lot of money.”

“I don’t see the Suez Canal as a safe bet in the next 30 years, as safe as it’s been over the last 30 years,” he said. “So, Israel may have a chance to establish itself as the European-Asian link. And gas could be one of the driving factors in developing that corridor.”

According to Wurmser, the cessation of natural gas supply from Egypt to Israel is a warning sign with regards to using energy resources as a component of future peace processes.

“What we saw with Egypt was a general assumption, that with that amount of revenue flowing from Israel to Egypt, that the elites as well as the Egyptian state would come to rely on those revenues, and that would essentially anchor the Egyptian-Israeli peace structure,” Wurmser said. “Yet when the ideological shift in Cairo happened, so went the gas.

“And I think this is a warning sign for anyone who thinks they can use the gas to drive peace,” he added. “Gas should be sold on an economic basis, and should not be sold as a means to drive the peace process. Because the track record with the Palestinians and with Egypt is not a good one.”

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