For decades it seemed Israel was the only country in the Middle East lacking natural resources. In contrast to its oil-rich neighbours, Israel's crude oil and natural gas reserves were mostly too small for companies to even consider extracting. However, that changed in 2009 with the discovery of the Tamar natural gas field off Israel's coast. Then in 2010, with enthusiasm over Tamar at a peak, 47 kilometres south-west of the field, geologists came across Leviathan, the largest deepwater natural gas field discovered anywhere in the world in the past decade.

Extractions from Tamar and Leviathan could contribute $52bn to Israel’s economy, according to international consultancy Ernst & Young. And most importantly, the fields hold a promise of energy independence for a country that as recently as 2012 saw major disruptions to its gas supply when two Egyptian utility companies halted exports to Israel.


Geopolitical advantage

Thanks to the discoveries, geopolitics might well be working to Israel’s advantage for once. “With neighbouring countries desperately looking for new energy suppliers and different export scenarios involving various regional players, the newly discovered riches could play a balancing role in the region by reducing the risk of conflict through increased interdependence,” says Emre Tuncalp, director at Washington, DC-based consultancy Sidar Global Advisors. Indeed, Noble Energy, the biggest investor in Israeli’s offshore gas fields, has already announced a deal to export $500m-worth of gas from Tamar to Jordan.

Questions still abound, however, as to how the gas can be transported outside Israel's immediate neighbourhood. According to Mr Tuncalp, the most probable scenario is either building a pipeline connecting Israel to Turkey or a subsea pipeline to Cyprus and further through a liquefied natural gas (LNG) facility.

“The pipeline to Turkey has lower upfront costs, but potential tensions between the countries could provide an obstacle for this scenario,” says Mr Tuncalp, adding that building an LNG facility in Cyprus, although more costly, gives better access to more customers, especially in east Asia, where natural gas can be sold for a higher price.

While looking for potential allies for its exports, Israel still has some work to do at home. A number of uncertainties remain around antitrust regulations and tax regimes, and there is ongoing debate as to where the gas terminal should (and should not) be located.

Yet, it seems that one of the biggest hurdles was cleared in 2013 when the Israeli government reached a decision on how much of the gas could be sold outside the country. Although the quota, capped at 40% of the country’s output, is lower than anticipated by investors, it still provides some stability in the much-hyped national debate on how best to tap the country's newly found reserves.