The May agreement between the Israeli government and a consortium of natural gas companies led by Houston-based Noble Energy means that development of the huge Leviathan offshore field can finally proceed, after eighteen months of delays prompted by Israeli domestic politics and legal challenges. Even so, the final decision on investment is unlikely to be issued before December, the first Leviathan gas is not expected to come ashore until late 2019, and host of challenges could limit the overall economic impact of Israel’s gas discoveries.

TEMPERING POLITICAL OPTIMISM

Last week, Energy Minister Yuval Steinitz spoke of “a vision for the next decade,” when “Israel will be a major player in the energy market” because “as much as four Leviathans” worth of gas is waiting to be found. And on June 20, a Reuters story noted that natural gas was “a key driver of efforts to forge a rapprochement between Israel and Turkey.”

From a geological and technological perspective, however, the future is less rosy. Yes, more gas is likely out there, and perhaps oil as well. But the latter would not be commercially viable to exploit at current prices, and finding the former is a very expensive endeavor. Drilling an exploratory hole alone costs over $100 million, using a pricey rig that floats in water 6,000 feet deep, with potential gas deposits at least another 6,000 feet or so under the seabed. Even with optimistic seismic data, finding any gas, let alone in commercial quantities, can be a hit-or-miss exercise. And notwithstanding Steinitz’s “four Leviathans” claim, the size of an offshore field is just one factor affecting its potential profitability. For example, Egypt’s Zohr field, found last year and notionally even larger than Leviathan, contains gas contaminated with hydrogen sulfide, which will need to be removed at additional cost.

Read the full article at the Washington Institute.