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Natural gas: Handle with care

The pros of energy security are mixed with risks of reckless spending, gutting long-term supplies and making enemies

Israel has begun to receive natural gas from the Tamar field in the Mediterranean. This good news should come with a huge “handle with care” sign.

On the positive, the large deposits of natural gas beneath the water off Israel’s coast offer energy security for a period estimated as long as 50 years. Moreover, it comes in the form of one of the most ecologically friendly natural resources.

The gas will help change Israel in several good ways. Obviously, it will generate huge savings on energy costs. This has been a major restraint on Israel’s economic development. Second, vast investment in infrastructure will be required to exploit the Tamar field and transport the gas to Israeli and, possibly, foreign destinations. In a cogent analysis of the impact of the on Israel, David Wurmser, a Washington based analyst and former State Department official, points out that:

When Israel moves from ranking high in small-scale industries, research and development, and start-ups, to mastering large-scale infrastructure as well, it will assume a position in the elite inner circle of the world’s handful of the most advanced economies.

It also is good news that the huge gas deposits are coming online shortly after Egypt’s natural gas became inaccessible due to the slow collapse of the Egyptian state and a growing incapacity (or lack of desire) to carry out its commitment under the peace treaty.

But caution is in order. Many countries, and not just underdeveloped states, discovered to their chagrin that vast natural resources can be a mixed blessing. The massive inflow of revenue can drive up the value of the national currency, making local industry non-competitive. In the short run, the danger is that a lack of foresight will lead to a carnival of spending with vast funds available for many worthy, or less worthy, causes. In the long run, as the country runs through its finite natural resources, it can find itself with its economy hollowed out. Some countries, Norway being the most well-known, have created sovereign funds that invest their earnings outside the national economy, allowing for healthy domestic economic growth but preventing the destructive carnival of spending and uncompetitive rise in the value of the currency, insulating the country against the day when the natural resource runs out.

Haifa University professor of political science Brenda Shaffer told me that the total amount of natural gas estimated to lie beneath Israeli waters, while huge in terms of Israel’s energy needs, will not make Israel a major player in the world market. However, Wurmser points out that even a small player can have disproportional influence, depending on where they sell the gas and what impact that sale has on global pricing. Marginal players can cause price fluctuations that generate large losses for more important players. To be blunt, Israel must think through its relationship with Russia in the matter of natural gas. It is in no position to seriously compete, but could find itself annoying Russia with strategic consequences.

Finally, there is the strategic question of whether, or how much, to export. Should Israel extract and export its natural gas beyond its own needs or leave it safe beneath the ocean and prolong the expected period of energy independence? Those who argue against mass export suggest that by leaving the gas where it is, Israel avoids the risks of overheating its economy, driving up the value of its currency and entering the complicated international natural gas market, some of whose risks are described above.

Perhaps there is a middle ground focused on the immediate region. One obvious candidate for export is Jordan. Like Israel, the Jordanians are hard hit by the chaotic situation in Egypt. Maintaining a stable, economically successful Jordanian state is a primary Israeli and American interest. Whatever the decision on export in general, it will be hard to make a case against supplying cheap and clean energy to our neighbor with whom we share a long border and a peace accord.

In the end, the massive Tamar field is a boost to Israel’s quest for energy independence, so critical to assuring security for this small nation with mostly hostile neighbors.

About the Author
Ed Rettig is the Chair of Shomrei Mispat, Rabbis for Human Rights.