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A popular quip in Israel's energy industry has it that when Moses left Egypt, he took a wrong turn on his way to the Promised Land: The Biblical figure should have veered right to Saudi Arabia rather than left to Israel, which has long been assumed to lack any petroleum reserves. Now it appears Moses might have had a better nose for energy than previously thought. On Jan. 18, just hours after a cease-fire began in the Gaza Strip, Israel announced the discovery of a major natural gas field off its northern Mediterranean coast.
The news sent the Tel Aviv stock market sharply higher on Sunday as the size of the find appeared to eclipse the negative impact of the recession the country is now facing. Shares of the Israeli partners in the Tamar-1 drilling site jumped between 42% and 124%, though profit-taking pulled some down on Jan. 19. Even the Israeli shekel joined in, climbing by up to 1.6% against the dollar on Monday before settling the day up a half-point.
"This is one of the biggest finds ever, and could even turn Israel into a natural gas exporting country," predicts Yitzhak Tshuva, the majority shareholder in Israel's Delek Group (DELKG.TA), one of the partners in the offshore drilling. That would be a huge change for a country that has been nearly 100% dependent on imported oil and coal. Last year alone Israel spent $12.8 billion on fuel imports.
The find, located 90 kilometers due west of the port of Haifa, is the first large field discovered in the eastern Mediterranean and is significant even by global standards. "This is one of the most significant prospects that we have ever tested, and appears to be the largest discovery in the company's history," says Charles Davidson, chairman and CEO of Houston-based Noble Energy (NBL), the U.S. partner in the consortium.
Initial estimates put the value of the offshore gas at $15 billion, but experts say the estimate is preliminary and could go substantially higher. The partners in the project—Noble, Delek Drilling, Avner Exploration, Isramco (ISRL), and Dorgas—will have to invest around $1 billion to develop the field, and gas could begin flowing within three to four years. "The field can meet Israel's natural gas needs for the next two decades," says Israeli National Infrastructure Minister Benjamin Ben-Eliezer.
Noble and its Israeli partners are hoping that Tamar-1 is only the tip of the iceberg. They are already planning to search in areas adjacent to the discovery, which have gone unexplored until now. "The whole Eastern Mediterranean region will become a major focus for international oil and gas companies in the years to come," predicts Eitan Aizenberg, exploration manager at Ratio Oil Exploration, an Israeli company with a stake in five offshore licenses.
Aside from the coincidental scaling back of hostilities in Gaza, the timing of the gas discovery couldn't have been better for Israel. The country is in the midst of switching its older oil-based power plants to cleaner natural gas, which is far more environmentally friendly. More than a dozen new gas-powered plants are in the works. But in the past year there has been growing concern that Israel would face a supply crunch within a few years. Unlike with oil, gas supplies often have to be guaranteed for years in advance.
A much smaller field off Israel's southern Mediterranean coast discovered by some of the partners in the Tamar drilling consortium is expected to run dry in 2012. In May, Israel began importing gas from Egypt, but technical problems with the marine pipeline have led to constant disruptions. Making matters worse, there has been growing opposition in Egypt to the sale of gas to Israel at prices agreed to in 2005 that are substantially below the current going rate.
For Tshuva, one of Israel's wealthiest men, the discovery came at an opportune moment. The 61-year-old businessman, whose holdings also include New York's Plaza Hotel, has been hard hit by the global recession and the sharp downturn in the real estate market. He is one of a handful of Israeli real estate barons to have invested billions of dollars in markets such as New York, Las Vegas, and Eastern Europe in recent years. There were even concerns that Tshuva wouldn't be able to meet his loan and bond repayment commitments. But with billions of dollars in potential income from the new gas field, in which his Delek Group has a 31% stake, the tycoon made it clear that he'll have no problem making payments.
Unfortunately for the Israeli economy, the financial impact of the gas find won't likely trickle down for at least several years. "There is no doubt this will transform the economy in the long run," says Leo Leidernman, chief economist at Bank Hapoalim (POLI.TA). The discovery is expected to sharply reduce Israel's expensive dependence on imported fuel, as well as foster the development of big local investments in the oil and gas exploration sector. But in the short term, Israel's good fortune will do little to counter a deepening recession that is expected to slash economic growth to 1% or less this year.
Sandler is a correspondent for BusinessWeek in Jerusalem .