Second chances, they say, are rare, especially in the Middle East. But when it comes to Israel’s vast off-shore gas reserves—some of the world’s most remarkable energy finds of the past half-century—it may be that the country’s politicians and citizens will get an opportunity that seemed all but lost a few short years ago. Israel can turn their natural-gas gift to its advantage in ways that will remake the Middle East.
I’ve been a keen advocate of Israel becoming energy independent since at least 2013. I’ve predicted in several op-eds and articles that exploitation of those reserves could transform the geopolitics of the region, and even Israel’s relations with Europe. This summer saw changes in regional geopolitics that have transformed Israel’s options for exploiting those reserves. What seemed a locked and buried treasure chest thanks both to the twists and turns of Israeli politics and to plunging energy prices worldwide now looks like a valuable regional bounty—one that makes Israel not only energy secure but also more secure in its relations with both its near and distant neighbors.
At the heart of the story is the demise of a 47-year-old Arab boycott that made doing business with Israel taboo for Western energy companies. As we’ll see, what brought the change was not so much a sudden warmth toward Israel; or even a need for its natural gas, but a growing fear of Iran—and with it the simultaneous discovery that partnering with Israel in the natural-gas market can strengthen and stabilize the entire region, to the benefit of both Israelis and Arabs.
It is also the story of an Israeli energy minister who has had the vision, and the persistence, to make what seemed a fantasy scenario—Israel as an energy-producing power—closer to reality than ever before.
All in all, the story is remarkable, unexpected, and—a true rarity in the Middle East—appears to have a happy ending.
The process of turning Israel from a historically fossil fuel-starved nation into a net energy producer began with the discovery in 2000 of a large natural-gas field submerged fifteen miles off the coast of Israel, dubbed Mari-B. Bereft of any indigenous oil company that understood offshore drilling, and rebuffed by larger companies fearful of defying the dreaded Arab boycott, the Israeli government had to turn to Noble Energy, a mid-size Houston-based oil and gas firm, to explore and develop the field. The hope was that Mari B could make Israel less dependent on fossil fuels from foreign sources—sources that might shut off the nation’s supply at a moment’s notice.
Noble had no experience working in the Middle East or Israel. In many ways, that worked to the Texas company’s benefit. Had the management then known all the political minefields they were walking into by offering to explore and develop Israel’s offshore reserves, they might never have started.
Noble began producing natural gas from the Mari B field in 2003. That was followed by test drilling in 2009 of a much larger field measuring some 9 trillion cubic feet (Tcf) of gas, dubbed the Tamar field. Noble began producing gas from its Tamar platform in 2011, and soon was able to provide Israel with what it had always dreamed of: a homegrown energy source to power its fast-growing economy. In economic and national-security terms, the arrangement couldn’t have been better.
But a year later Noble engineers uncovered the biggest find of all, a natural-gas deposit more than twice the size of Tamar at 22 Tcf. There was also a possibility that the gas field—aptly named Leviathan—contained within it a “dome” of oil (now estimated to be a modest half-a-million barrels). At the time crude-oil prices were averaging more than $90 a barrel, and natural-gas prices were coming off four dollars per cubic foot (today they are barely $2.50). Suddenly the possibility that Israel could go from being energy self-sufficient to becoming a major energy player in the Mediterranean basin loomed large—so large it almost seemed too good to be true.
Two things had to happen, however, before Israel could turn Leviathan into a powerful lever in the region’s energy markets. First, the field had to be developed and brought into commercial production, a process that was estimated to take another four years and cost up to $6 billion—far beyond Noble’s own resources. Second, it was necessary to find a way to get the gas to those energy markets. Although experts estimated that Leviathan had enough natural gas to supply all of Israel’s needs for the next 40 years, Israeli demand alone would not be enough to make opening the field commercially viable. Instead, the Jewish state had to figure out how the Leviathan bounty could supply the needs of others, whether Israel’s Arab neighbors, including the Palestinians, or further afield in Europe. In 2014, when Israelis were confronting the question of what to do with this embarrassment of energy riches, I wrote:
Israel is poised not only for future energy independence, but for becoming a major regional energy player—maybe even, if it uses its resources wisely, the next energy superpower. The looming question, however, is not whether the world is ready for Israel to be the next Texas. It’s whether the Israelis are ready.
As it happened, and as many of us feared, Israelis weren’t ready—or so it seemed. While Prime Minister Netanyahu clearly saw the strategic possibilities for Israeli natural-gas exports and remained a staunch champion of the Leviathan project, a host of other Israelis, from environmentalist groups and left-wing political parties to some on the nationalist right, saw opening up Leviathan as a huge mistake. There were many who thought it unfair to let Israel’s natural “treasure” pass into foreign hands or generate foreign profits, including for Noble. Far better to keep it close and under the sea, went the argument, in case Israel ever needed it in an emergency (forgetting that opening an offshore natural-gas field the size of Leviathan could take the better part of a decade). Even better, anti-fossil-fuel environmentalists argued, leave it there for good.
As so often happens in Israeli politics, the result was stalemate. The fate of Leviathan (no one seriously suggested shutting down Tamar, which continued to feed Israel’s own growing energy needs) got stuck in the throat of Israeli politicians and businessmen for the better part of three years. Efforts to find additional international partners that could help Noble to open the field stalled; meanwhile Noble’s key Israeli partner, Delek Oil, was vilified in the media as its founder, Gideon Tadmor, became one of the country’s most hated men. Then, to Noble’s frustration and fury, the Israeli government without warning changed the terms of the original deal in order to extract greater royalties.
Indeed, for a time in 2016-7 it looked like Noble’s best option might be to cut its losses of $2.5 billion already invested, and pull out altogether. The fact that Noble did not was a tribute to the company’s belief that staying the course would ultimately, somehow, pay off. As for the project’s chief Israeli supporters, Prime Minister Netanyahu and Energy Minister Yuval Steinitz, their effort to find a market, any market, for Israeli gas led Netanyahu at one point to approach the Russian energy monster Gazprom. It also brought negotiations with Turkey, not exactly Israel’s closest friend and supporter—although the prospect of a deal with Turkey that would feed Israeli natural gas into Turkey’s planned pipelines from Central Asia, whence it would be taken to southern Europe, did look like one that could benefit Israel’s position in the Middle East and even serve U.S. interests in the region. That is, if a deal could be worked out.
As I wrote in Mosaic at the time:
Clearly, any deal on getting Israel’s natural gas to foreign markets requires cutting through multiple complications and securing the cooperation of many players. More positively, though, it also invites, on all sides, some serious rethinking of the relationship between energy and diplomacy, and in particular of the ways in which energy cooperation might hold out the prospect of not only defusing political tensions but of enhancing the prospects of actual strategic cooperation.
That prospect seemed frozen. Then in 2016, shortly after the words above appeared, the ice began to thaw.
The first change was signaled by the formation of a real working partnership for exploiting the massive field, dubbed the Leviathan Group. This involved another round of concessions from Noble: selling its majority stakes in both Tamar and Leviathan to Israeli investors. Pursuant to this deal, Noble would operate the field and hold a minority stake of 39.66 percent, while Delek Drilling LP and a company headed by the former energy minister Uzi Landau, Ratio Oil Exploration LP, would hold 45.34 percent and 15 percent respectively.
Delek in particular presented a new public face, with the divisive Gideon Tadmor fading into the background, and Idan Wallace assuming the helm as CEO, while Noble and the Israeli government reached a final deal to begin Leviathan production by the end of 2019.
The remaining question was finding customers. The answer was to turn to Israel’s immediate neighbors who, whatever their feelings about doing business with the Zionist state, were eager to get access to Leviathan’s product. The Leviathan Group first signed a $10 billion deal to supply gas to Jordan’s National Electric Power Co. in 2016, and then another with the Palestinian Authority. Then in 2018, just as Noble was gearing up to open the Leviathan field, the group signed a deal to export gas to Egypt over ten years. This deal in particular offered the intriguing possibility of processing Israeli natural gas in liquified form for export abroad using existing facilities at the mouth of the Nile, which would also be processing Egyptian gas from the newly discovered Zohr offshore field—a project that involved a major Italian energy company, Eni.
By the end of 2019, then, contracts were in place to deliver 3 Tcf from the Leviathan as well as Tamar fields to customers in Israel and elsewhere. Meanwhile, during the third quarter of 2019 Tamar had produced a milestone of 2 Tcf of gas. Leviathan was now seen as the next big step in securing Israel’s energy future.
On the last day of 2019, the $3.6 billion Leviathan field started production. “We think it’s a huge day for Israel and the region,” Noble Energy’s President Brent Smolik told Reuters during his visit to Israel, adding that Egypt would begin importing Israeli gas by mid-January.
But the Leviathan vision still had one very large bridge to cross, literally—one that would carry Israeli gas across the Mediterranean to Europe.
As hopes for a deal with Turkey steadily faded, the possibility of striking a better arrangement with Turkey’s neighbors loomed ahead, especially with Cyprus, where Noble engineers had also discovered large offshore natural-gas reserves, dubbed Aphrodite. Egypt, however, proved to be the most important partner in widening the potential scope of Israeli gas exports. A running dispute with Turkey over maritime boundaries with Libya, along with larger geopolitical tensions, had soured relations between Cairo and the government of Recep Tayyip Erdogan, while Egypt’s own Zohr field—which Israeli energy watchers had once feared would be in cut-throat competition with Leviathan—seemed to be the perfect candidate for a joint-export enterprise.
So in January 2019 Egypt and Israel created the Eastern Mediterranean Gas Forum together with Cyprus and Greece, with the energy companies Eni, France’s TOTAL, Russia’s Novatek, and America’s Exxon Mobil joining in. A year later, in January 2020, as gas started to flow from the Leviathan reservoir via an undersea pipeline to a terminal in Israel, a deal was struck among Israel, Greece, and Cyprus to build an additional 1,180-mile pipeline to carry natural gas to a yet-to-be-built facility that would liquify it for shipping to Europe. The pipeline was slated to be completed by 2025; in the meantime, both the U.S. and France joined the Forum, France as a full-fledged member and the U.S. as permanent observer.
Direct American participation in the Eastern Mediterranean consortium was itself a turning-point in this saga. The Trump administration had come to see the pipeline as a way to develop a viable alternative to Europe’s dependence on Russian natural gas, and to deny Moscow a major source of strategic leverage over the EU and NATO allies. The East Med pipeline would also serve to isolate Erdogan’s regime, which had become increasingly hostile to U.S. and Western interests.
All the same, serious obstacles remained. Whatever its strategic advantages, the East Med pipeline and its liquid-natural-gas terminal had no commercial investors or prospects; completion by 2025 seemed more fantasy than reality. By this summer, between COVID and tumbling energy prices, hopes for a major breakthrough once again seemed stalled.
Then suddenly in July came the biggest game changer of all, when the energy giant Chevron announced on July 20 it was going to bid to acquire Noble and its stake in both the Tamar and Leviathan fields.
This stunning announcement from America’s second-largest energy company rocked both financial and energy markets. The offer was to purchase Noble Energy for around $5 billion, an offer a financially stretched Noble was in no position to refuse. And although Noble owned energy assets around the world, it was obvious that the crown jewel of the Chevron buyout was the Leviathan field.
For the first time, a major energy player was signaling that even in a time of sharply lower energy prices, Israeli natural gas represented a significant future resource, especially when linked up with supplies from Egypt and Cyprus. Taken together the three fields—Zohr, Leviathan, and Cyprus’s Aphrodite field—would constitute upwards of 55 Tcf-worth of gas in reserve, or nearly half of Saudi Arabia’s annual natural-gas production. It would make the consortium a commanding presence on the world market.
It also significantly altered Israel’s own perspective on the same reserves, including that of the Israeli members of the Leviathan Group. Certainly the appearance of a substantial partner such as Chevron boosted the overall credibility of the government’s plans for gas export. It also boosted the ability of Noble’s Israeli partners, Delek and Talon, to raise cash, enhancing their role as active participants in everything that follows.
Whatever factors drove Chevron’s decision, none of it would have been possible without a geopolitical sea-change: namely, Israel’s rapidly improving relations with its Sunni Arab neighbors, especially Saudi Arabia and the United Arab Emirates (UAE). Since the mid-2000s that improvement has been driven by their mutual recognition of a common foe in Iran. This summer it triggered the epochal agreement normalizing relations between Israel and the UAE, which was soon followed by a similar agreement with Bahrain. These have signaled to Chevron, and other American energy companies, that the threat of Arab countries ostracizing firms that did business with the Jewish state had finally passed.
In short, the Chevron-Noble merger represented a permanent breach in the Arab embargo, an event more momentous than any single energy deal. Commentators have all recognized that the Israel-UAE signals a major shift in the balance of power in the region, one that will unequivocally benefit Israel. Among the greatest benefits to Israeli may be the potential for putting their country’s energy resources to good use.
What does the future of Israel’s energy comeback hold?
The next place to look for a breakthrough is Lebanon. Ever since the discovery of the Leviathan field in 2010, which is only a few miles from Lebanon’s Exclusive Economic Zone, Beirut has been locked in a fractious dispute with Israel over the boundaries of its own offshore reserves. Those reserves, some experts claim, may be even larger (25 Tcf) than Leviathan itself, although a test drilling in May turned up nothing. After the recent protests and upheavals, a new more popular government might ease the way for Lebanon to join the East Med consortium, not only ending the dispute with Israel but, with Chevron’s help, opening a potential natural-gas bonanza for the Lebanese people—while administering another defeat to the region’s most dangerous foe, Iran, and its catspaw Hizballah. It can hardly be coincidence—given Israel’s progress with other Arab states—that the two countries are now set to begin negotiations over their maritime borders next week.
The politician with the most impressive vision for what the future may hold for Israel’s role as a major energy player, and in many ways the hero of the entire story, is Minister of Energy and Water Resources Yuval Steinitz. Since his appointment in 2015, Steinitz has stuck with the Leviathan dream through thick and thin, clearly driven by the conviction that the reserves would become valuable to Israel only if they were opened up and developed. The very factors that offended some Israeli chauvinists—allowing foreign companies and countries to profit from Israel’s energy bounty—Steinitz saw as the key to securing Israel’s geopolitical, as well as economic, future.
“We have an interest in exporting Israeli gas and in having export options,” Steinitz told Reuters in 2016 (ironically when he was negotiating with the Turks), rather than “being totally dependent on one country for our exports.” He has also pushed Israel’s shift to natural gas from coal and diesel as part of a larger green agenda, which would lead to an actual decrease in air pollution from the energy industry for the first time in the country’s history. His ministry aims to end coal use in Israel completely by 2025, replacing it with “renewables” like solar and wind power—but also with natural gas.
Steinitz has become the leading champion for the East Med pipeline and gas exports to Europe; he is also looking eastward for future markets. There has been talk, for example, about supplying additional natural gas to Jordan in order to generate electricity for Iraq. Steinitz sees India and even Japan as potential customers.
Meanwhile, the chorus of gloom from the green left continues unabated. It can be gauged from a series of recent headlines from the left-wing daily Ha’aretz: “Israel Needs to Let Go of the Natural-Gas Fantasy” (March 12, 2020); “Fearing Pollution, Israelis Leave Homes as Offshore Gas Production Begins” (this was on December 31, 2019, just as Leviathan production was starting); and “Israeli Gas Is Great—for Egypt and Jordan” (January 9, 2020). Since the signing of the Chevron deal, green activists have blasted the energy giant as a serial polluter—ignoring the fact that natural-gas “spills,” even if they were to happen, wreak a fraction of the kind of environmental damage associated with their oil-based counterparts. At the same time, persistently low energy prices have put a crimp in the hopes of some on the left that tapping Leviathan would generate a massive flow of funds for social-welfare and green-energy projects.
But as I have argued from my very first articles on the subject dating back to 2013, the value of Israel’s natural-gas treasure goes beyond revenues and profits. It is instead rooted in Israel’s new role in the geopolitics of the Middle East, a role no one could have imagined twenty years ago.
They say second chances don’t mean anything unless you learn from the first. Now Israelis can prove they have learned some valuable lessons for the future, as they and their partners in the Eastern Mediterranean open a new chapter in the history of the region, and in energy security around the world.