There is no shortage of human capital in Israel, but unlike neighboring countries, especially in the Persian Gulf, we simply could not find oil reserves that provide the economic and energy independence that is so necessary to survive in the jungle of the Middle East.
After hundreds of wells were drilled across the country to try and locate black gold, the trickle that came out of the Heletz field became a symbol of the failed attempt to find it. In the absence of natural resources, the State of Israel developed human resources. Thus, Israel became a high-tech powerhouse that depended on imported coal, oil and gas.
Then suddenly came the miracle of natural gas. Huge reserves were discovered under the seabed that are nothing less than an economic miracle that ensures the energy independence of Israel for decades to come. Israel also turned into a major player in the energy market as a gas exporter to Jordan, Egypt and other countries that now themselves depend on Israel for their energy needs.
The search
It’s not easy to extract oil or gas from the bowels of the earth. When it comes to the seabed, the process becomes many times more complex. NewMed Energy (formerly Delek Drilling) is a public energy partnership specializing in the exploration, development, production and sale of natural gas. In the last twenty years, the company has been at the center of the discoveries of all natural gas fields in Israel (Tamar 2009, Leviathan 2010, Tanin 2011, Karish 2013).
It has also been a central partner in the development and production of natural gas in the Tethys Sea, Tamar and Leviathan projects. The company owns 45% of the Leviathan reservoir, the largest natural gas reservoir in Israel, as well as other reservoirs. It also explores abroad, such as in Morocco and Bulgaria. Today it is one of the 35 largest companies traded on the Tel Aviv Stock Exchange.
Impact on energy costs
“Natural gas caused a revolution,” explains Yossi Abu, 47, the CEO of NewMed Energy. “I’m talking about energy, economic, geopolitical and environmental security.”
Abu, who lives in Beit Nekofa, a moshav in central Israel, has been the company’s CEO since 2011. He led the development of the Tamar and Leviathan gas reservoirs and the regional export agreements for the export of natural gas from Israel to Egypt and Jordan.
“In terms of energy security, natural gas has changed the energy reality in Israel. In the past, Israel was completely dependent on imported energy sources, but today it holds strategic assets that guarantee its energy independence,” he observes. “The gas framework approved ten years ago enabled the development of the Leviathan and Karish reservoirs, and without it, Israel would have suffered from an acute shortage of independent energy sources.”
“The existence of natural gas has caused a dramatic reduction in energy costs,” Abu explains of the economic implications. “Thanks to the discovery of natural gas in the past decade, the price of electricity has dropped by 15%, while in Europe its prices have increased significantly.”
He adds, “It is enough to look at energy prices in Europe, which soared due to the Ukraine-Russia war, and compare them to Israel, where the Swords of Iron War did not cause electricity prices to rise. In addition, we pay billions to the state. In the past decade alone, the natural gas industry has paid the state about 25 billion shekels, and these amounts are increasing every year.”
Impact on the environment
According to Abu, the gas miracle also has an important environmental impact. “Using natural gas to generate electricity is a cleaner substitute than coal and diesel. Reducing the pollution created by the use of coal and diesel allows us to live in a healthier environment and reduces environmental costs.”
“From a geopolitical perspective,” Abu continues, “the export agreements signed with Jordan and Egypt have strengthened strategic ties and relations with neighboring countries. Even during the current war, exports to Jordan and Egypt continued, and this contributes to regional stability.”
“In the security context, a significant part of national security is energy security,” he states. “During the Swords of Iron War, the president of Colombia announced a halt to coal exports to Israel. If we did not have our own gas, it could have led to widespread power outages. In practice, this did not affect the electricity sector, which continued to operate as usual thanks to our natural gas reserves, without dependence on other countries.
Regional partnerships
“To these we can add the strategic tie created following the Abraham Accords in both the Emirates and Morocco, where we, an Israeli company, hold a license to explore for natural gas. Azerbaijan also recently entered into activity in the Israeli energy sector. SOCAR, the national oil and gas company of Azerbaijan, is going outside of Azerbaijan for the first time to actively explore for gas in partnership with us, NewMed Energy, and the British company BP.”
He continues, “Together we won the fourth tender for a license to explore for natural gas in Israel’s economic waters in Area I. And there is another connection to the Abraham Accords. In 2021, Abu led the sale of Newmed Energy’s holdings in the Tamar reservoir to Mubadala Petroleum of Abu Dhabi—the largest single deal signed following the Abraham Accords.”
Comparing reserves
Golda Meir once said, ironically, “God led the Israelites for 40 years in the desert to the only place in the Middle East where there is no oil.”
So it’s true, we didn’t find oil, but we did find gas. The amount of natural gas in Israel is about 1,000 BCM. Israel’s annual consumption, on the other hand, is 13–14 BCM. This is similar to the 12 BCM Israel exports annually to Egypt (9 BCM) and Jordan (3 BCM). This means that we have huge reserves in relation to what Israel consumes, and will have enough for decades to come, while also allowing for exports. In relation to where we were 15 years ago and the regional situation, we are definitely a powerhouse.”
“But compared to other energy-producing countries, such as Qatar, whose exports are about 100 BCM, and Russia, where gas exports reached 200 BCM, Israel is a small producer that exports regionally. We are indeed players in the export market, but modest in the global arena.”
The battle over the gas deal
“The natural gas sector always suffers from high uncertainty. There were those who didn’t believe that gas would be found; there were those who didn’t believe that we would be able to export it; and in the end, reality surpassed all imagination,” Abu says. “It may be hard to remember, but just a few years ago, there was a public struggle here on the gas issue. Protesters screamed ‘Gas robbery!’ at the Netanyahu government, claiming the state was being ripped off by the gas companies.”
A decade and a half later, it’s pretty clear who won. Net profit for the three largest gas companies operating in Israel (Energean, NewMed and Delek) for 2024 came to about $700 million. In contrast, the State of Israel made an estimated $1.3 billion from gas revenues in 2024. This works out to a 65% to 35% profit split. Considering the State of Israel doesn’t need to do any of the work and takes on none of the risk, this makes it an advantageous deal for the State.
Since Israel began profiting from gas production, it has collected almost $8 billion in revenues. Annual revenues are expected to double from $1.3 billion to $2.6 billion in the next few years. The annual budget of the State of Israel in 2023 was approximately $1.3 billion, so gas revenues accounted for about 1% of that. The current war has significantly increased the size of the state budget and so the growth in gas revenues will continue to represent about 1% of the budget in the near future.
The costs
It is neither easy nor cheap to search for gas, and even more difficult to search at sea. “The natural gas exploration process is a complex, lengthy, costly and risky process that energy companies bear. It is a process that combines research, advanced technology and rigorous risk management,” says Abu.
He adds, “The history of oil and gas exploration in Israel was full of disappointments. For decades, exploration attempts were made, but almost without success. The real change came when the state opened the exploration sector to the private market. The entry of private companies with financial strength, knowledge and a willingness to bear risk created an incentive for investment and perseverance, and it is this that produced results.”
The estimated cost of the development and production plan for the Aphrodite reservoir, of which Nomad Energy holds 30%, is estimated at $4 billion.”
He estimates the cost of developing the next phase of the Leviathan reservoir at $2.4 billion.
“Looking to the future, I believe that the era of artificial intelligence will revolutionize the field of natural gas exploration. On the geological level, it already enables more precise analysis of seismic surveys, improved forecasting processes, and the detection of underground geological structures,” Abu says. “Developments in the field will lead to the ability to learn and produce information quickly, reduce risks in drilling and shorten decision-making schedules.”
This article was originally published in Hebrew by Olam Katan.