World

For Israel, energy boom could make friends out of enemies

The Atwood Advantage drilling ship is probing the floor of the Mediterranean Sea, where lies one of the biggest natural gas fields discovered in the world in recent years.

Bryan Denton/New York Times

The Atwood Advantage drilling ship is probing the floor of the Mediterranean Sea, where lies one of the biggest natural gas fields discovered in the world in recent years.

ABOARD THE ATWOOD ADVANTAGE — In the ship’s control room, facing four video screens, a driller from Mississippi in dark shades and a black baseball cap with a skull on it held what could be the future of Israel in his hands.

The massive drill he controlled extended down 11,345 feet, more than 2 miles below the surface of a calm Mediterranean Sea, as it plunged deeper and deeper into one of the biggest natural gas fields discovered in the world in recent years.

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Once a barren energy island in a part of the planet otherwise awash in resources, Israel is, after years of delay, finally pushing ahead with an ambitious strategy to tap offshore reserves that could transform its economy and, it hopes, its place in a historically hostile region.

If all goes according to plan, Israel will not only become largely energy-independent, it will also supply neighbors that will have new reason to be friends.

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There is no guarantee that all will go according to plan, of course. Israel struggled for years to develop regulations to manage its newfound wealth. The international energy firms that Israel is courting have other options in an evolving global market. And the politics of a new era, as President-elect Donald Trump encourages assertive Israeli action in Jerusalem and the West Bank, could kindle fresh conflicts with Arab neighbors that make energy partnerships problematic.

But optimists see cause for confidence as once-stalled drilling in the Mediterranean resumes, additional tenders are issued and new customers sign up — or at least talk about it. The government in Jerusalem envisions building pipelines that could transport Israeli gas as far away as Europe.

“Suddenly we are an energy player,” Yuval Steinitz, the energy minister, said as he toured the Atwood Advantage a few weeks ago.

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The potential for enhancing Israel’s relations with its neighbors is alluring. Steinitz credited energy for a recent reconciliation with Turkey. This development came years after diplomatic relations had broken down over a violent confrontation at sea that resulted in the deaths of 10 Turkish activists who were trying to break through Israel’s naval blockade of Gaza.

“We were in a very negative course with the Turks,” Steinitz said. “Two or three years ago, some in Israel even thought we might have armed conflict. Now we have opened relations with one of the strongest countries in the Middle East. So we already see diplomatic benefits.”

Turkey has not agreed to an energy deal, but Jordan has. In September, Jordan signed an agreement to buy $10 billion in natural gas over the next 15 years, which would supply 40 percent of its electricity.

Israel also has its eye on Egypt, and officials are contemplating a pipeline to Cyprus, Greece, and eventually Italy to access European markets. To bring in more international energy firms, it has just put 24 blocks in the Mediterranean up for tender, with bids due in April.

“We are in the middle of a revolution,” said Nati Birenboim, an owner of the Tamuz Group, a consulting firm advising one company in the current tender. “If we were talking 10 years ago, 15 years ago, and I said Israel would find a big amount of energy and be almost totally independent when it comes to energy, you would think that I am crazy. We were the country of milk and honey but when it came to oil, we left it to our neighbors.”

Still, Birenboim cautioned against excessive exuberance about the potential for change with Israel’s neighbors. Egypt, he noted, has its own possible offshore reserves. “It’s not going to be a game changer” with Cairo, he said. And Turkey seems to be turning to Russia.

Beyond the geopolitics are market complications. With natural gas resources more abundant globally and prices falling, Israel may find it difficult to attract the international investment it seeks to take its fledgling energy sector to the next level.

‘Suddenly we are an energy player.’

Yuval Steinitz, Israel’s energy minister 
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“Investors are not beating down the doors of any country as they did in the last decade, and they have to be competitive to attract investment because companies are going to be very selective in this new world of lower prices and oversupply,” said Daniel H. Yergin, vice chairman of IHS Markit, an energy consulting firm in Washington.

Israel has been looking for energy since the 1950s, but the breakthrough came in 2010 with the discovery of fields called Leviathan and Tamar, said to hold 25 trillion to 30 trillion cubic feet of natural gas. A partnership led by Noble Energy, a Houston-based company, and the Delek Group, an Israeli firm, has developed wells in Tamar; the first supplies reached domestic markets in 2013.

Israeli gas now produces more than half the country’s electricity and has bolstered its economy. Leo Leiderman, chief economic adviser for Bank Hapoalim, estimated that along with the broader decline in energy prices, the influx of natural gas translated to an additional 2 percent of gross domestic product. And that is with only a part of the reserves being tapped.

Leviathan, which is more than twice the size of Tamar, has yet to be developed. Exploration stalled because of disputes over how the government should regulate the potential boom. Critics like Shelly Yachimovich, a Labor leader in Parliament, complained that corporate “pigs” would profit off resources that belonged to the Israeli people. The Noble partnership resisted what it called changing the rules after it took the risks and invested considerable money in the project.

A government committee led by Eytan Sheshinski, an economics professor, put forward a new scheme to tax profits after exploration and development costs were recovered. But even after that was resolved, antitrust authorities determined that the companies represented a cartel.

Prime Minister Benjamin Netanyahu’s government responded with a new regulatory plan, only to have it struck down in court. A new regulation framework was finally put in place last year, clearing the way for renewed exploration in the fall.

The well is to begin pumping gas soon, and the Atwood Advantage plans to move on to another field by the end of next month.

“For me, it’s like a dream, because one year ago everybody thought it was entirely impossible that Israel would be able to resume drilling,” said Steinitz, the energy minister. “And now it’s taking place. It’s happening.”

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