Parting the waters of Israel’s offshore energy industry

It seems that Moses knew what he was doing after all. Huge gas discoveries in the deep water of the Mediterranean Sea are causing Israelis to rethink the old joke – popularized by former prime minister Golda Meir—that Moses led his people for 40 years through the desert only to end up in the one place in the Middle East that has no oil.

An eastern Mediterranean gas rig
Photo: Reuters

Now, the Israeli government is looking for Canadian help to develop those resources. “This will make us less dependent on energy imports and make our industry more competitive,” Israeli Energy Minister Uzi Landau said in an interview during a three-city tour of Canada that included stops in Toronto, Ottawa and Calgary.

Landau and Petroleum Commissioner Alexander Varshavsky visited in order to examine Canada’s energy regulatory system as their country needs to revise a petroleum law that dates back to the 1950s. And they are eager to attract investment in the fledgling industry by Canadian energy companies.

The Harper government has been forging closer commercial ties with Israel. Natural Resources Minister Joe Oliver visited the country in June. He and Mr. Landau signed an agreement in Toronto this week to establish a joint energy technology fund, reflecting Israel’s leadership in energy efficiency and renewable technologies.

The Jewish state is a world leader in such technology, as the lack of fossil fuels made energy innovation both an economic and strategic imperative. Now, four major discoveries in the eastern Mediterranean promise to make Israel self-sufficient in natural gas. That’s a huge boon, given that the pipeline that carries gas from Egypt has recently been bombed and the Egyptian government under the Muslim Brotherhood has cancelled an agreement to supply Israel with the fuel.

In Ottawa this week, Landau and Varshavsky met with a half-dozen Canadian cabinet ministers, including Oliver and Foreign Minister John Baird. Varshavsky said the Israelis were looking for guidance on energy regulations as it prepares for major infrastructure investments needed to develop the offshore fields and to join the global race to export liquefied natural gas.

“Now that we have major discoveries we have to begin very large and complex infrastructure projects in this field,” he said. “We have to bring our regulations to the level of the developed countries which have experience in this field.”

Oliver said the gas boom presents an opportunity for Canadian businesses, including oil companies and those active in the offshore service sector in Atlantic Canada. “We have expertise in extraction and regulation and servicing and so on,” the minister said in an interview Wednesday. “There are lots of opportunities for us to be helpful and to further develop our business relationship.”

The gas boom has sparked a heated debate in the country about how much gas Israel should export, and how much it should reserve for domestic use. An interdepartmental committee has recommended the country ensure it has a 25-year supply of reserves that can feed domestic demand before allowing exports. The Israeli cabinet, now immersed in an election, has not finalized that policy, and the Ministry of the Environment wants a far more restrictive policy that would essentially bar exports and provide incentives to transform the power and transportation sectors to burn gas.

Canada’s National Energy Board requires that exports will not cause Canada difficulty in meeting its domestic energy requirements at a reasonable price. Until the mid-1980s, it imposed a 25-year rule which allowed gas to be exported only in excess of Canada’s 25-year requirement.

Varshavsky said Israel believes it has as much as 32 trillion cubic feet (tcf) of recoverable resources in three deep-water fields, Tamar, Tanin and Leviathan. The governmental committee has forecast that the country will need 15 tcf over the next 25 years, even with a major shift from coal to gas. That would leave as much as 17 tcf available for export. (By contrast, Canada  has more than 700 tcf of natural gas.)

If exports are approved, the Israelis expect to supply Palestinians and Jordan with natural gas, and Varshavsky said that prospect will help foster economic integration and improve the prospects for peace in the region.

Most of the offshore discoveries are in undisputed waters, but there is potential for conflict around Cyprus. Israel and the Greek Cypriot government have agreed on the development of a field that straddles their territory. However, Turkey, which occupies part of Cyprus, has expressed opposition to Israel’s deal with the Greek-speaking Cypriots.

Houston-based Noble Energy Inc. is the major leaseholder in Israel’s offshore, and last month announced it had commissioned a new drill ship that will be capable of work at the depth of 1.5 km, typical of the eastern Mediterranean.

Noble is already producing some 250 million cubic feet a day from shallow-water plays. And the company expects to begin producing next spring from the Tamar block, where it estimates there are recoverable reserves of five tcf. Noble says Leviathan—billed as the world’s biggest gas discovery of the past decade—should start producing in 2016.

But the Israelis don’t want to rely on one company, with its supporting cast of smaller domestic firms, to develop its offshore resources. Landau and Varshavsky were in Calgary on Wednesday, where they were seeking investment by major Canadian firms. “We want companies with substantial experience in oil and gas exploration and production to enter our market,” the petroleum commissioner said. “We need both the capital and the expertise.”

LONG-TERM POTENTIAL

While Israel is eagerly developing its offshore gas fields, the country is looking to tackle a potentially bigger prize: a massive deposit of shale oil that lies under its feet.

The World Energy Council has estimated the country’s Shefla Basin contains 250 billion barrels of shale oil, a low-grade hydrocarbon that is difficult to extract and requires huge amounts of energy to upgrade.  The figure is roughly equal to Saudi Arabia’s oil reserves, though that understates Israel’s challenge in developing the resource.

The United States has the world’s largest deposit of shale oil. Several companies, notably Royal Dutch Shell PLC, have been experimenting with the bitumen-like oil, but have yet to come up with a commercial extraction method.

On Wednesday, an Israeli delegation visited Calgary-based Laricina Energy Ltd., which has been experimenting with new methods for recovering oil sands bitumen.