Once dependent on Egyptian supply, Israel's new gas fields spark internal debate

The vast gas reserves discovered in waters claimed by Israel in recent years may transform the state into a major gas exporter. The government sees a promising future, whilst the opposition warns of a possible economic catastrophe.

Is Israel on its way to becoming an economic empire through the discovery of new gas fields in recent years? If we asked the Minister of Finance, Yair Lapid, the answer is yes. But according to the leader of the opposition, Shelly Yachimovich, the government’s energy policy could expose the country to economic and social disaster.

Israel did not rely on gas as a major energy source until the beginning of the twenty-first century. It is true that small amounts of gas were discovered in the 1950s near the southern city of Arad, but a considerable amount of gas was only found with the discovery of reserves adjacent to the shores of Ashkelon in 1999. After that, additional gas reserves were discovered in the field of Mary-B, which had a volume of around 32 billion cubic metres, but has now been almost completely exhausted by the Israeli Electricity Company.

Israel’s preference to produce electricity using gas, as it does not pollute the environment, led the government to sign a historic contract with Egypt, whereby it was agreed that Egypt would supply Israel with natural gas. “This contract is like a peace treaty with Egypt,” boasted the CEO of the Israeli Electricity Company, Jacob Razon, after the contract was signed, which was supposed to ensure the flow of gas to Israel for 20 years.

Israel claimed that the ousted President of Egypt, Mohamed Hosni Mubarak and the Minister of intelligence services, General Omar Suleiman, both had personally blessed the deal. Meanwhile, British Gas tried to mediate a deal between Israel and the Palestinian Authority for the supply of gas from a field adjacent to the Gaza coast. But Israel, fearing the money would be used in terrorist operations against it, opposed the proposal.

Egypt started delivering gas to Israel in 2008, providing around 45 per cent of the country’s gas consumption. However the trade relationship did not last long, as the events of the “Arab Spring” eventually led to the cancellation of the treaty. The disruption of Egyptian control in the Sinai Peninsula led to at least 14 attempts to sabotage the gas pipeline connecting Israel and Egypt. Attempts to fix it were eventually abandoned. “It was clear to me that the day Mubarak is no longer in power, there will be no more gas”, said Youssef Baritsky, Israel’s Minister of Infrastructure, who at the time managed the operation on the Israeli side.

But in recent years, entrepreneurs have discovered additional quantities of gas in the disputed waters claimed by Israel that are exceptional in size and could lead to an influx of large sums of money for the Israeli economy. In the summer of 2009, it was discovered that the field Tamar contained around 240 billion cubic metres of gas, and in 2010, it was discovered that the field Viacan contained at least 453 billion cubic metres. Other recently discovered gas fields were found to contain quantities of approximately 40 billion cubic metres of gas.

The enormous quantities of gas discovered off the coast of occupied Palestine has not passed quietly and instead has opened a whole new debate in Israel about the tax rates that companies which discovered the gas would have to pay. Social organisations called on Israel to immediately increase the tax rates, as the newly discovered natural gas is a wealth owned by all the citizens of the state, and should benefit everyone. In contrast, the opposition suggested that raising the tax rate would lead venture capitalists to stop investing in gas exploration projects and would force Israel to renew their agreements with Egypt.

A public committee appointed by the Ministry of Finance eventually recommended raising the tax rates, in what was considered a victory for social organisations. The businessman Yitzhak Chovah, who invested a lot of money into the gas exploration, expressed his strong disappointment with the recommendations, saying: “The state must respect its obligations to investors, who are all citizens of the State of Israel.” According to Chovah, reducing his assets would lead to harming the security of Israel: “If the Iranians now agreed with the Lebanese to provide Europe with gas instead of Israel, what will the funds that reach Iran be used for?”

Additionally, Israel is concerned with ensuring confidence in the continued use of gas fields. Although the businessmen who financed the excavation requested to retain the majority of profits, they still insisted that the state should provide the funds that ensure the excavation. Israeli Prime Minister Benjamin Netanyahu supported this request, and initiated a government resolution stipulating that the state should fund up to half of the expenses related to the protection of the marine oil facilities.

But in the past year, Israel’s gas exports were the main subject of concern among the Israeli public. In a press conference held last summer, Prime Minister Netanyahu announced that 40 per cent of all gas extracted will be issued to foreign markets. “We want to export gas and fill the state treasury with billions for the benefit of citizens.” Netanyahu added that gas extraction and the development of gas are the growth engines that will lead to advancing the State of Israel.

Opposition leader Yachimovich strongly condemned Netanyahu’s decision, saying: “This is an act of sabotage against a wonderful opportunity available to Israel. Gas resources could give all citizens of the state independence in terms of energy for the country, a dramatic reduction in the prices of energy and water, the development of new industries, an important contribution to the quality of the environment, social prosperity, all of which would greatly enhance the security of the state.”

The disagreement between Netanyahu and Yachimovich sparked a wider debate. On the one hand, economic specialists commended the Prime Minister’s decision, believing it to have positive consequences for the Israeli economy. “It’s a good decision that finds a balance between the need to maintain security in the energy sector of the local economy and the financial health of the State of Israel, by allowing exportation”, said a source in the professional field. On the other hand, Netanyahu’s decision was condemned by social activists. The body for maintaining Israeli gas funds was quoted as saying: “Netanyahu has shown, in an unprecedented manner, how he completely ignores the needs of the Israeli people in favour of the interests of the people with capital.”

The decision to export gas is widely popular among the ministers of the Israeli government, who suggest that Israel is already on its way to becoming a major power in gas exportation. The Finance Minister, Yair Lapid, recently told the Knesset that “immediate links to the gas pipeline will expand the market, reduce unemployment, contribute to reducing the high costs of living in Israel and reduce electricity prices.”

Yair Lapid also attacked the opposition’s decision, which he claims delayed the production of gas when it placed restrictions on the amount of gas exported. According to his claims, natural gas exportation will provide Israel with $60 billion over 20 years. However, the opposition suggests that exporting gas will result in all gas fields being emptied after a quarter of a century, thereby causing great harm to the Israeli economy.