The discovery of large shale oil resources on Israel’s land and natural gas reserves in the Mediterranean’s Levant Basin near Cyprus, will enable it to become a major natural gas exporter to Europe. In addition to creating the potential for wooing back former allies in Western Europe, these discoveries are already enabling Israel to form commercial and military alliances with Cyprus and Greece to coordinate gas exploration and extraction and thwart Turkey’s belligerence.
Gazprom Israel, a new commercial partnership formed with Russia, provides geopolitical as well as economic benefits for the Jewish state. Among Russia’s motives are the desire to influence the price of gas going to Europe and accessing Israeli know-how in countering Islamist terror threats in Russia. Given Russia’s historic rivalry with Turkey and Iran, its growing military ties with Israel will serve as an additional political tool in the Jewish state’s arsenal to protect its energy development and to secure its future.
Muslim nations will lose their oil weapon and diplomatic clout due to a new emerging energy order. Recent discoveries of plentiful global resources of shale oil and shale gas reserves, in combination with technological advances in “fracking,” the hydraulic fracturing technique used to obtain the oil and gas from shale’s permeable geologic formations, will enable many countries to be less dependent on energy imports.
The boom will push prices down and North America, already engaged in developing its immense amounts of shale, can become energy independent in a decade.
Israel Contributes to a Cleaner World
In an era of booming populations, shrinking resources and environmental degradation, Israel leads the world in such critical fields as solar power generation and seawater desalination. As nations struggle to make the best use of their resources, Israel’s cutting edge technologies promise to improve the health and living standards of hundreds of millions across the globe, while making industry more efficient and minimizing the environmental impact of human activities.
Israel’s plan to break from gasoline dependence is providing structure and predictability to the marketplace, combining long-term public sector commitment with regulatory stability to send a clear message that innovation will have a home in Israel. Through investments in basic science and industrial R&D, and the launching of pilot programs and full scale-ups for promising technology, Israel is taking the lead in confronting one of the most pressing security issues of our time. A country of under 8 million people, Israel alone cannot end gasoline’s global monopoly nor end the West’s dependence on hostile petro-regimes. But together with international partners, Israel can serve as a generator of intellectual property and a test-bed for innovative solutions, challenging the economic and security vulnerability that the United States and Israel both face through gasoline dependence.
Israel has also set a national goal consistent with the Copenhagen Accord to increase its share of renewable energy in electricity generation to 10 percent by 2020. In the same period of time, Israel plans to reduce its electricity consumption by 20 percent.
Oil brings us to a better place
June 14, 2013
By all accounts, Shai Agassi, the founder and original CEO of Better Place, Israel’s bankrupt electric car company, is an extremely charismatic man. His charm had politicians, venture capitalists, celebrities and non-automotive industry reporters slobbering over him. Everyone wanted to get their picture taken with the man who would transform Israel’s auto industry into the first electric powered industry in the world and transform the start-up nation into the transportation hothouse for the world.
Agassi’s vision was simple and easy to understand.
By 2020, half of Israel’s cars would be battery powered electric cars supplied by his company, Better Place. We would replace our internal combustion engines, powered by oil produced by our worst enemies, with batteries produced by Better Place. Better Place would overcome the technological deficits of batteries that are only capable of powering a car for short distances by building battery changing stations throughout the country. Instead of filling up our tanks with gas, we would replace our battery.
And our enemies would go bankrupt.
The only ones not convinced by Agassi’s plans were people who actually understand the car market generally and the Israeli car market in particular.
Automotive industry reporters warned as early as 2008 that Israeli drivers would need incentives to buy into a new technology. Cars in Israel are prohibitively expensive. The government charges 82 percent customs duties on imported cars. If electric cars could be cheap cars, then they had a chance of succeeding.
To help Better Place succeed, the government gave the company a massive discount on import taxes. Better Place, which signed a deal with Renault to produce a battery-charged model of the Fluence family car, paid only 10% import duties for the car.
Instead of passing the savings off on its customers, Better Place cars cost the same amount as regular gasoline powered cars. And that’s not including the cost of the battery or the monthly subscription to Better Place battery charging services.
So there was no economic incentive to buy the car.
Many have chalked the failure of Better Place up to its poor management. And no doubt Agassi’s management skills didn’t hold a candle to his skill as a salesman. The company’s business model was an incoherent study in overreach and hubris.
But the fact remains, the car was too expensive.
And that makes some sense. Building a whole national infrastructure for electric cars is expensive.
The only incentives Better Place gave consumers were ideological. And as it worked out, only 900 people were willing to pay full price to own a car whose actual battery life was between 100 and 120 kilometers, just to reduce their carbon footprint or to screw the Arabs.
To summarize, the government gave Better Place a massive tax break. Investors poured $840 million into the company. The media showered the company in fabulous free PR.
And in four years, it only managed to sell 900 cars.
That tells you something about economics.The iron rule of supply and demand is foolproof. If the price is too high, people won’t buy your product. And if the ticket price of being the pioneers in a risky market, of having to go out of your way to get to the battery swap stations, and of swapping your battery three to four times more often than you have to fill up your gas tank is the same as the price of a normal car, then no one will want to be a pioneer. And no one did.
Indeed, according to Channel 2, more than a hundred of the 900 owners of Better Place cars worked for the company. And the majority of the other owners purchased the electric car as a second or third car.
People warn that Better Place’s failure will harm the reputation of Israel’s hi-tech economy. But these warnings make little sense. Better Place wasn’t a hi-tech firm. It was an electric car company. And it wasn’t selling new technology.
It simply packaged old failed technology in a new way.
What failed with Better Place wasn’t the idea of Israeli hi-tech prowess and ingenuity. What failed – again – was the notion that there is a way to use alternative energy sources – like electricity – to replace the internal combustion engine. And there isn’t. There isn’t because laws of supply and demand govern the economics of the car industry even when Shai Agassi is the one selling alternative economic laws.
One of the attractive aspects of the alternative fuels market is that it allows people who care about security to partner with radical environmentalists who oppose the consumption of oil.
No other issue brings far-right security hawks together with far-left environmentalists. And while most environmentalists are unmoved by the presence of conservative hawks in their coalitions, conservatives are overjoyed at the opportunity to rub shoulders with members of Greenpeace and the Sierra Club. Maybe one of the reasons that many security hawks remain enamored of alternative fuels despite their clear inability to replace oil on an open market is because they are unwilling to abandon their one common cause with the Left.
But the time has come to abandon the environmentalists.
Israel has the means to achieve energy independence and pave the way for the free world to neutralize the economic power of the Islamic world.
Unlike the situation with Better Place, economic laws of supply and demand work in favor of Israel’s energy solution. The only force standing in the way is a coalition of radical environmentalists who oppose all oil consumption because they believe that the greatest threat to the world is global warming. They don’t want cheap oil.
They want oil at $500/barrel. They don’t want clean oil at cheap prices. They want us all to live in crowded cities, become vegetarians and travel around on mass transit or ride bicycles.
Four years ago, Israel discovered that it is sitting on top of a massive amount of oil. South of Jerusalem, in the Shfela Basin beginning around 15 km. from Kiryat Gat, Israel has an estimated 150 billion barrels of oil – or 60% of Saudi Arabia’s reserve capacity. The oil is located in shale rock located 300 meters below ground. It is separated from Israel’s underground aquifer by 200 meters of impermeable rock on either side.
If tapped into, Israel’s domestic oil supply could provide us with energy independence for hundreds of years. At the initial stage, we could produce enough to satisfy entirely the IDF’s fuel requirements – 50,000 barrels a day. And we could refine it at Ashdod without even having to expand our refining capacities. In later stages, we could produce enough oil to satisfy the entire country’s consumption needs of 80 million barrels a year.
A visit with the senior executives of Israel Energy Initiatives is frustrating journey into Israel’s political pathologies. IEI holds the license to develop Israel’s shale oil deposit. CEO Relik Shafir, a retired air force brigadier- general, explains that due to a well-funded campaign of radical environmentalists directed by Greenpeace in Turkey, IEI has entered a “Kafkaesque regulatory universe,” where a pilot project to demonstrate its technology has been held up for four years.
First through petitions to the Supreme Court spearheaded by the far-left, New Israel Fund-supported Adam Teva V’Din environmentalist movement, IEI’s pilot project was delayed for a year. The pilot, which will take three years, involves demonstrating IEI’s technology for oil extraction by extracting 500 barrels from a test area south of Beit Shemesh.
The Supreme Court found in favor of IEI, but required the government to rewrite the law governing oil explorations. Radical environmentalists at the Environmental Protection Ministry coupled with incompetent bureaucrats at the Ministries of Justice, Energy and Interior delayed the project for another three years by delaying the drafting process.
Now the law has passed. And all that stands between IEI and the pilot program is the Jerusalem Planning Board. The board will likely begin deliberations on the plans in the fall.
IEI’s chief scientist, Harold Vinegar, worked as chief scientist for Royal Dutch Shell. There Vinegar developed the technology for shale oil extraction. To transform the shale rock into liquid crude oil, shale oil needs to be heated to 300 degrees Celsius. Heated at that temperature, in three years, the rocks melt into liquid fuel that is extracted through production wells.
Vinegar developed the means to heat the rocks inside the earth with heaters dropped 300 meters. Due to the shale rock’s isolation from the aquifers, and the fact that 9 meters from the heated area, the rock temperature remains 25 degrees Celsius, IEI’s technologies will have no impact on the environment, either below or above the surface.
The basic rationale of the environmentalists’ campaign against IEI’s pilot is to kill Israel’s ability to develop its oil fields before the public realizes what is involved. Once the pilot is approved, assuming it lives up to IEI’s projections that it will be able to mass produce oil at $40/barrel, public support for the initiative will be so great, and the economic logic of moving forward will be so overwhelming, that the project with be unstoppable.
Unlike Better Place, IEI won’t need a charismatic salesman from Silicon Valley to sell its product.
Today Israel pays $100 per barrel for Brent crude, or NIS 2.2 per liter. Consumers pay NIS 8 per liter at the gas pump, which includes refining and transport costs and taxes. If Israel produced its own fuel, although the government would certainly continue to overtax it, and it would still need to be refined and transported, there can be little doubt that the price for consumers would be significantly lower. And most important, the supply would be guaranteed.
One of the IEI’s minor investors is Australian news mogul Rupert Murdoch. Murdoch is interested in IEI because there are also massive deposits of oil shale in Australia. If IEI’s pilot is successful, Australia will doubtlessly follow Israel’s lead in developing its own energy independence through oil shale development.
Unlike the situation with Better Place, there is no hype surrounding IEI – except the negative hype generated by the radical environmentalists.
For an oil company sitting on the license area covering an estimated 40 billion barrels of oil, IEI’s appearance is shockingly modest. Whereas Better Place wasted tens of millions on glamorous offices and a huge workforce, IEI office suites are as plain as can be. President Effi Eitam, former minister of national infrastructure, works in a tiny, cluttered office and sits behind a nondescript desk on an inexpensive chair. Employees work in cubicles.
IEI has not waged a campaign to counter the environmentalist propaganda because it believes that the facts will speak for themselves. The minute IEI is able to run its pilot, it is convinced that the public will back it. Whether or not this is the proper strategy will be determined in the coming months by the Jerusalem Planning Committee.
In the meantime, due to shale oil fracking, the US has moved from net oil importer to net oil exporter in five years. In the same period, Israel has seen IEI’s pilot delayed year after year as politicians and reporters have followed alternative fuel pied pipers into bankruptcy.
Natural Gas Changes The Middle East
April 4, 2013
Last Saturday (March 30) Israel took a large step toward energy independence, as natural gas from the smaller of its newly discovered Mediterranean gas fields began to flow.
By the end of this decade Israel will not only be supplying its own needs fully, but exporting natural gas to the world market. It will be able to supply itself for at least 50 years and perhaps three times as long–reducing its energy costs, improving its environment, making the cost of production lower, and increasing prosperity and state revenues. This natural gas supply more than replaces what Israel used to receive from Egypt, but Egypt has become an unreliable supplier for Israel (and for Jordan as well).
Of course another country has in recent years begun to move from energy dependence to independence, from importer to exporter–our own. And these facts about both Israel and the United States will have lasting and significant geopolitical ramifications. Israel had already become an economic success story, the “start-up nation,” and its success will be reinforced–while around it are political and economic failures like Egypt and Syria, and energy-needy Jordan. The natural supplier of energy for Jordan and any eventual Palestinian state is Israel, a fact that would change the nature of their relationships. In a region where instability is spreading, a stable, increasingly wealthy, powerful Israel will grow in value as an American ally.
Our own relationships with Gulf oil producers like Saudi Arabia were built not on political or cultural affinity but on our dependence on their oil exports. We did not pay attention to what Saudi kings said because we thought they were wise men, but solely because their country was the world’s leading oil exporter. It is true that there is one global price for oil and it matters to us, and true that we have many allies still dependent on Gulf oil. But when we are no longer dependent, the relationship changes; it becomes less intimate, and Saudi influence in Washington must decline over the years. We will also have to rethink the way we deploy our military over the coming decades, for the need to protect oil supplies has been more important over the last 50 years than it will be in the next 50.
Much that happens in the Middle East appears far more consequential than it really is, creating headlines but no real change. The American and Israeli discoveries of vast amounts of natural gas that will allow both countries to become energy exporters is a different sort of event: more dramatic than it may at first appear, and far more significant in reshaping relationships in that region.
Natural gas from Tamar field reaches Israel
One day after it was first pumped to Israeli shores, valuable resource flows to processing plant for use in energy market
TIMES OF ISRAEL STAFF
March 31, 2013
Natural gas from the offshore Tamar field reached Ashdod on Sunday night after it was pumped to Israeli shores for the first time Saturday, four years after its discovery.
The Tamar deposit, discovered in 2009 some 90 kilometers west of Haifa, holds an estimated 8.5 trillion cubic feet of natural gas.
On Saturday, hailed a “historic” and an “important day for the Israeli economy” by Prime Minister Benjamin Netanyahu, natural gas from the field was pumped to a newly erected facility on the coast of Ashdod, connected to the gas field via pipelines laid out on the ocean floor, 150 kilometers long and 16 inches wide.
On Sunday, the gas finally reached the Ashdod processing plant from which it will start to flow into the Israeli market.
This newly harnessed resource promises to be a major boon to both the country’s public and private energy needs.
The gas from Tamar is expected to help meet Israel’s energy needs for the next 20 years, Channel 2 said, and will save the economy some NIS 13 billion (some $3.5 billion) per year. Its ahead-of-schedule use will also save Israeli citizens some cash — lowering a planned rise in electricity costs to 6 percent, less than originally planned.
The Tamar deposit, and especially the heftier Leviathan, which was discovered in 2010, are expected to provide Israel with enough natural gas for decades and transform the country, famously empty of natural resources, into an energy exporter.
Leviathan, which boasts an estimated 16 to 18 trillion cubic feet of gas, is expected to go online in 2016, the approximate time when exports are expected to begin.
The discoveries are just a portion of the huge reserves in the Levant Basin, which the United States Geological Survey estimated in 2010 holds some 122 trillion cubic feet of recoverable natural gas.
Israeli energy policies could discourage foreign investment
March 25, 2013
TEL AVIV — Thanks largely to Houston-based Noble Energy, Israel is about to join Texas in a natural gas-fired economic boom. But is Israel curbing opportunity by discouraging other international oil and gas companies from coming here?
Israelis are in a foul mood about the economic power concentrated in the hands of a few select companies, and that’s spilling into the petroleum sector. An “excess-profit” tax was enacted on oil and gas in 2011, raising the government’s share of income to 62.5 percent. (Much of the proceeds will go into a long-term fund that’s expected to hold $80 billion by 2040.)
Noble came to Israel in 1998. It started finding natural gas beneath the Mediterranean Sea in 2004. It made the world’s largest natural gas discovery of the year in 2009 with the Tamar Field, and repeated that feat in 2010 with the discovery of the aptly named Leviathan Field.
Commercial production from Tamar is scheduled to begin in a matter of days. Israel’s Central Bank estimates the field will account for nearly a third of Israel’s economic growth this year.
Tamar’s development occurred early enough so that it will be largely unaffected by the excess-profit tax.
But the tax is discouraging other companies from coming to Israel, said David Wiessman, president and CEO of the Alon Group of companies, one of Noble’s partners in Tamar and the parent company of Dallas-based Alon USA.
“The Israeli middle class feels squeezed, so the government wants more taxes from the oil companies,” Wiessman said.
“I told the government it was right to do it for the Israeli companies, but not the foreign companies. Noble changed our lives forever, but Israel needs more investors besides Noble to come into the area.”
There are plenty of natural gas investment opportunities around the world and lucrative international markets as well. Some of the biggest oil and gas exploration companies are busy with projects in Israel’s neighbors. Others might shy from the uncertain security environment.
But Israel isn’t making much of an effort to put out the welcome mat.
With the loss of gas imports from Egypt, Tamar will soon account for the vast majority of Israel’s natural gas supply. The Israel Antitrust Authority took note and ruled in November that the field’s owners — Noble, Alon and two other Israeli companies — constitute a monopoly.
The ruling has not mattered much so far, because the first sales contracts for Tamar had already been signed. But a similar ruling is now expected for the Leviathan Field, where production is expected to begin in 2016.
The first Tamar sales contracts are a relative bargain. Most of the gas will go to the government-owned Israel Electricity Corporation for power generation for $5.75 per thousand cubic feet. That’s higher than U.S. prices, but half the price paid in Europe and a third of the price paid in Asia for liquefied natural gas imports.
Israel has so much offshore gas that the companies are eager to export much of it. (Noble had found an estimated 35 trillion cubic feet of it — five times the proved reserves of Texas.) The Tamar Field owners inked a deal in February for 20 years of liquefied natural gas exports through the Russian gas giant Gazprom.
In December, Noble and its partners in the Leviathan project sold 30 percent of the field to Australia’s Woodside Petroleum Ltd. with the understanding that Woodside would build a liquefied natural gas plant and market the production.
As in the United States, however, some Israelis are balking at the idea of exporting gas. Some economists warn that exports will raise domestic prices — the same argument of U.S. gas-consuming companies like Dow Chemical and General Motors.
“All the gas could be exported to China, but it could also be used by industry to lower the cost of living by $10 billion a year and create new jobs,” said Yossie Hollander, chairman of the Israeli Institute for Economic Planning.
Noble, meanwhile, is looking to exploit another huge gas field off the southern coast of Cyprus. Among the options under study is building a liquefaction plant in Cyprus that could handle gas from both the Cypriot field and Leviathan.
Shell to sell Woodside stake, fearing Arab boycott
March 4, 2013
Royal Dutch Shell owns 23% of Australian company Woodside, which has agreed to buy 30% of the rights to the Leviathan field.
Energy giant Royal Dutch Shell plc (LSE: RDSA) will sell its holdings in Australian energy company Woodside Petroleum Ltd. (ASX: WPL) because of the Leviathan deal and concerns about the Arab boycott. Three months ago Woodside agreed to buy 30% of the Leviathan field’s rights for $1.5 billion. Shell has a 23% stake in Woodside.
In a survey published by Commonwealth Bank of Australia (CBA) analysts Luke Smith and Lachlan Cuskelly wrote, “We anticipate a sell-down to dispel any perception amongst other Middle Eastern countries that Shell is investing either directly or indirectly in Israel.”
The bank values Shell’s stake in Woodside as worth $7.2 billion and believes that Australian mining company BHP Billiton Ltd., which also has energy interests, is a leading candidate to buy the shares. Shell said that the report was “speculation.”
Shell, the world’s largest public company according to Forbes 2012 rankings, has huge energy interests in the Middle East. Concern about the Arab boycott has deterred many major international energy companies from entering Israel’s gas and oil energy exploration sector. British Gas was the only major international company that agreed to work in Israel but it abandoned the market in 2006.
Woodside, which specializes in liquid natural gas (LNG) projects in Australia, agreed to buy a 30% stake in Leviathan on December 3 2012.
Leviathan contains an estimated 18 trillion cubic feet of gas. The field is operated by Noble Energy Inc. (NYSE: NBL), which was a small US company when it moved into the Israeli market. Noble owns 39.66% of Leviathan, Delek Group Ltd. (TASE: DLEKG) units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling Limited Partnership (TASE: DEDR.L) own 22.67% each, and Ratio Oil Exploration (1992) LP (TASE:RATI.L) owns 15%.