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Kurt Cobb

Kurt Cobb

Kurt Cobb is a freelance writer and author of the peak oil-themed thriller Prelude. He speaks and writes frequently on energy and the environment and…

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Why Israel may Rue the Decision to Export Limited Natural Gas Reserves

As the United States contemplates exporting natural gas to the rest of the world, previously energy-poor Israel seems about to jump on the export bandwagon. The current government is seeking approval to export about 40 percent of the production from its newly discovered offshore natural gas fields.

In an era of high volatility in energy prices and supplies and in a country surrounded by unfriendly neighbors, one would think that Israel would want to keep this valuable energy prize all to itself. Current estimates suggest that the remaining 60 percent of production will allow Israel to supply all its needs for 25 years.

My question is: What will the country do after that? Presumably it will need natural gas after 25 years. And, what if estimated reserves turn out to be too optimistic and the supply doesn't last that long? No one really knows what's in a reservoir until it is actually produced.

Related article: Behind the Numbers in the Surging Global LNG Market

What if the current steep rise in the rate of natural gas consumption continues for a number of years? Estimates stated in years of supply are usually based on the current rate of consumption. But if the rate of natural gas consumption continues to accelerate, the 25-year supply will shrink to a fraction of that number and the inevitable peak in production from these fields will occur even sooner. Moreover, additional supplies are unlikely to come--at least at favorable prices--from any of Israel's neighbors.

Wouldn't Israel benefit from maintaining a lower rate of natural gas production in line with its domestic needs so as to stretch out supplies as long as possible? Of course, it would. The country's energy security would be greatly enhanced if its natural gas supply could be assured for, say, 40 years instead of 25 (though the period is likely to be quite bit less if consumption continues to rise).

So, who benefits from overproducing natural gas for export? The private companies involved in the drilling and extraction of the gas, of course. It is in their interest to produce as much as they can as soon as they can in order to reward their management and stockholders. As if to put an exclamation point on this interpretation, Bloomberg reported that one of the partners in the project, Delek Group Ltd., is swimming in debt and desperately needs the extra sales that exports represent to make its debt payments.

Related article: Discussing US LNG Exports with the President of the CLNG

Though the Israeli Parliament is expected to act on the proposal to export natural gas, it could just as easily pass legislation that would restrict flow rates from these reservoirs. For a country as sensitive about its security as Israel, it is surprising that no apparent consideration has been given to this approach.

There are dissenting voices. But my guess is that the interests of the private companies involved in natural gas exploration and production will be given precedence over the long-term security needs of Israel. And, I expect this to happen very shortly.

By. Kurt Cobb




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  • Jonathan Dembo on June 26 2013 said:
    Dear Sir: The author of this article seems to imagine that oil and gas will simply find itself and deliver itself to market without human intervention. To the contrary, oil and gas are difficult to find and to bring to market as Israel's decades of failure to do so prove. If the energy producers are denied this larger market why should they take the great risk and expense to keep on looking for oil? Unless Israel allows them to sell at least part of the oil and gas they find on the world market, they will stop looking for more. Eventually, the oil and gas will run out and there will be nothing to replace it. And nobody is going to fight to supply a small country like Israel with oil or gas ever again. So unless Israel allows the companies to market some of the oil elsewhere -- and 40% does not seem to be a very large percentage to me considering the risk and the amounts of money involved -- there will be no more of it when the present oil and gas runs out. If the drillers are allowed to sell the energy they find into the largest possible market, on the other hand, they will have the best incentive to keep drilling to find more oil and gas. In that way, Israel will have the best chance to wake up in 25 years with even larger reserves than they have today.
  • Gal Sitty on June 27 2013 said:
    One thing to consider in both nations' natural gas exporting debate, especially considering that much of the debate revolves around the term "energy independence," is that natural gas can be used to achieve that goal. Not just in terms of terms electricity generation, but in terms of offsetting oil imports used in transportation. Natural gas can produce methanol- a 'drop in' fuel that is cheaper than gasoline from oil. Doing so could make each country truly energy independent while possibly creating enough domestic demand to meet the producers' needs.

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