"The exploration and drilling industry in Israel is perhaps at kilometer 10 on a 100 kilometer journey, but it will all remain theoretical unless there are exports," says David Aron, founder and CEO of British consultancy Petroleum Development Consultants Ltd. (PDC), which has been active in Israel since 2004, mainly in advising the Natural Gas Authority at the Ministry of Energy and Water Resources. This year, Aron also advised Israel Electric Corporation (IEC) on the agreement between it and the Tamar partnerships. He was recently offered the post of Petroleum Commissioner at the Ministry of Energy and Water Resources, but after thinking it over for a long time he eventually decided to turn down the offer, preferring to continue with his private business.
It was almost natural for PDC to be selected to advise the government committee on the gas industry presided over by Ministry of Energy and Water Resources director-general Shaul Tzemach. The committee recommended to the government of Israel that it should keep gas reserves sufficient to supply the economy's needs for 25 years, while allowing each reserve to export at least 50% of its gas. The Tzemach committee's recommendations now await government approval, but Minister of Minister of Environmental Protection Gilad Erdan has already declared his opposition to the recommendation that Israel should allow exports of gas. Aron believes in the opposite approach, and recommended allowing unrestricted gas exports, apart from an obligation to connect the reserves to Israeli territory.
"All in all, the committee reached reasonable conclusions," says Aron. "It's just a pity that it had to twist and turn along the way. It was explained to me that it was no easy feat to bring this committee together to formulate an agreed policy, and I can understand the complexity of it. In general, it can be said that, in most cases in the past, governments have adopted mistaken policies for developing their oil and gas markets."
The most prominent example that Aron cites is Bangladesh. "Bangladesh decided to retain gas reserves enough for local consumption for 50 years. It simply wasn't realistic, and caused a complete halt in exploration activity for new reserves in the country. International experience clearly indicates that when a country forbids exports of gas, exploration ceases."
On the other hands, opponents of exports argue that the committee should not have based its calculations on future gas discoveries as well, discoveries that may not in fact be made.
"My argument is that Israel's energy security necessitates allowing gas exports. It's true that it's counter intuitive for many people who do not understand how the world of energy works. There is in Israel a mood that perhaps originates in the Jewish shtetl in the Diaspora, that you have to watch every bag of food, and that if we use the gas we will be left in the end without food and with an empty bag. But in the reality of the world of exploration, the way to discover more reserves is to give the developers an incentive to look for them. I formed the impression, among other things on the basis of professional material I have seen, that the quantity of gas that is out there in the sea is far far greater than has already been drilled. I believe that Israel has gas reserves of the order of size of those of Algeria."
Aron thinks that the committee went as far as it could to accommodate the opponents of exports, since keeping enough gas for more than 25 years would have made drilling not worthwhile. In addition, he warns that the government will struggle to implement a consistent policy without setting up a permanent mechanism "that will provide timely solutions to problems that arise, especially since we are talking about matters that have to do with several government ministries."
From a Zionist background
Aron founded PDC in 1988 after working for Marathon Oil and gaining experience in the North Sea. Over the years, the firm has advised various countries, among other things through the World Bank, and also the British authorities on a natural gas distribution network. It's no coincidence that PDC was one of the first consultancies to make contact with the Israel government. "I come from a Zionist background," Aron testifies. "My grandfather on my mother's side ran the Maccabiah Games in Berlin, and my mother too was active in the Zionist movement." As a supporter of the State of Israel, Aron also believes in gas as a lever for promoting geo-political interests. "I argue all the time that if Israel becomes a reliable supplier of gas to Europe, it will derive a political profit from that, because it will create an alternative to Russia. The option of supplying gas to the Palestinians and Jordan is also very interesting in my view."
PDC began its activity in Israel in 2004, the year in which natural gas started to flow from the Yam Tethys Mari-B drilling. "We advised the Natural Gas Authority on policy for constructing a gas transport and distribution network, and even then we formed the impression that there is a tendency towards over-regulation here." After that, Aron advised the Natural Gas Authority on where to locate an installation for importing liquefied natural gas. "At that time, I came to understand the shortage of beach areas in Israel," he says. This shortage will again be up for discussion shortly. The controversy over the decision to allow exports will probably turn out to be just a preview of the battle that will take place over the next few years over the appropriate site for constructing an export installation. This will be a large and dangerous installation that can be constructed on not more than three or four sites in Israel: in the Eilat area, Ashkelon, or Ashdod. Eilat is the preferred option for investors since it is closer to the desirable target markets of the Far East. Government company Israel Natural Gas Lines and Eilat Ashkelon Pipeline Co. Ltd. (EAPC), which is partly government owned, are already promoting a plan to construct the installation at Ramat Yotam in the Eilat mountains. The plan will receive a boost from the appointment of former EAPC chairman Amos Yaron as the government's coordinator of the gas exports program. On the other hand, the Ministry of Environmental Protection has announced its fierce opposition to constructing the installation in Eilat, among other things because of the short distance from residential areas.
Aron is highly skeptical about the feasibility of constructing the LNG installation in Eilat for another reason, which has not so far received publicity. "I'm familiar with the EAPC and Israel National Gas Lines plans, and I know that Noble (Noble Energy, Delek Group's partner in ownership of gas reserves, A.B.) has carried out extensive surveys of the area. The Israeli companies do not know the world of shipping very well, and so they have not taken into consideration the fact that LNG tankers are huge ships. If they have to sail to Eilat, there will be no room left for any other form of sea transport. In my view, it would be better to construct the LNG installation on the Jordanian side of the Gulf of Eilat, south of Akaba."
There is just a small political problem.
"True. The trick is to create an interest on the Jordanian side to ensure that such an installation will work." Aron's familiarity with the Middle East is not confined to Israel. Since it was founded in 1988, PDC has done a considerable amount of consulting work on natural gas for countries in the region such as Abu Dhabi in the United Arab Emirates, Iraq, and Lebanon. Aron says that the only country in which he refused to work on principle was Syria, which demanded an undertaking from PDC that it would not work in Israel.
To be realistic, it's impossible to export gas from Jordan, and probably from Eilat as well. So what in fact can Israel do?
"The experience of the North Sea shows that it is possible to export gas from one country via another. The Norwegians couldn't lay an undersea pipeline from their fields to the mainland, and preferred to send the gas to British installations. The clear analogy is Israel and Cyprus, so that I think that that could certainly serve as an interim solution."
Published by Globes [online], Israel business news - www.globes-online.com - on September 13, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012