Israel's new gas fields will do little for peace

Middle Eastern country finds large gas reserves. In our hydrocarbon-rich region, this would hardly be news, were it not for the identity of the country: Israel.

Middle Eastern country finds large gas reserves. In our hydrocarbon-rich region, this would hardly be news, were it not for the identity of the country: Israel. Golda Meir, the former Israeli prime minister, used to joke that Israel was the only place in the Middle East without oil. But in January last year, the US company Noble Energy found gas in the Mediterranean: not as good as oil, but a valuable second prize. More recent drilling confirms it is a giant discovery, probably just the first of several.

Suddenly, Israel can look forward to independence from energy imports, a cleaner environment, maybe even earnings from gas exports. But in this troubled region, such a bonanza is not likely to bring benefits to the Palestinians, nor peace. It may even contribute to further conflict. Ninety kilometres offshore from the northern Israeli port of Haifa, in waters 1,700 metres deep, through a thick layer of salt, the exploration well was tough to drill and cost US$140 million (Dh514.2m). Yet the discovery, named Tamar, was the second largest in the world in the past two years, and was immediately followed by another find nearby.

With this record, it is likely that much more gas remains to be found in the deep waters of the eastern Mediterranean. The excitement has led to a boom in the shares of Noble's Israeli partners, and gas deliveries could start as early as 2012. Noble has been producing gas in shallow waters on the border with Gaza since 2003, while Israel has also been buying Egyptian gas. Previously, Israel had planned, like Dubai and Kuwait, to import liquefied natural gas (LNG) to ease its dependence on expensive oil and polluting coal for power generation.

Now, the LNG terminal will probably not be needed. Tamar assures a 20-year supply for electricity, and the country could, like the Gulf states, build up gas-based industries such as aluminium or petrochemicals. In a happier situation, these discoveries would be a driver for regional economic integration. Some gas could go to energy-poor neighbours and Israel could join the Arab Gas Pipeline that runs from Egypt up to Syria, and ultimately on to Turkey and Europe.

In such an unstable area, of course, these initiatives are impossible. In reality, any significant exports would be as LNG to Europe, bringing no benefits to neighbouring states. Tamar has ramifications far beyond business and economics. Earnings from gas would make Israel more able to resist international pressure or boycotts over human rights and peace negotiations, and to weather any reduction in US aid. A secure domestic energy source avoids the need to look to Egypt, where recent legal action has sought to block gas exports to Israel.

Palestinians will feel they have some claim on this gas, but they are unlikely to gain anything from it. The people of Gaza can feel particularly aggrieved. In 1999, the British company BG found a large field offshore Gaza, enough to provide power to all Palestinians for a decade and more, but this gas has never been developed. Indeed, the former Israeli prime minister Ariel Sharon stated that Israel would never buy gas from the Palestinians because it had no intention of giving Hamas a source of revenues.

For the Israelis to exploit this gas themselves would be illegal under international law, and forbidden by the Oslo Agreement. They might have chosen to ignore the diplomatic consequences, but with the discovery at Tamar they can afford to leave Gaza's gas lying idle indefinitely. In the meantime, Gazans face daily eight-hour electricity blackouts. Tamar itself appears to lie within Israeli waters. However, with no peace agreement and hence border demarcation between Israel and Lebanon, there is always the possibility of new fields being uncovered in disputed areas, at a time of increasing speculation about an Israeli attempt to settle scores with Hezbollah.

Further north, Cyprus may share in this exciting new gas province, and Noble has rights to drill here, too. For Lebanon, with no indigenous energy sources, and Syria, a modest oil producer now in decline, exploration of their Mediterranean offshore should be a priority. Syria held a bid round in 2007 but attracted no interest, while Lebanon has not moved beyond data-gathering. So Lebanon and Syria, distracted by other issues, have fallen behind their neighbours in the race. Both these countries need to offer attractive terms to invite foreign companies with the skills and big wallets to explore these deep waters.

This episode is a reminder that, in themselves, oil and gas are neither a blessing nor a curse. Everything depends on what is done with them. In this troubled region, Tamar brings benefits only to Israel, and it has the tragic potential to encourage Israeli intransigence. In the absence of real progress towards peace, gas discoveries cannot be a force for regional prosperity. In the current circumstances, the best that Israel's neighbours can do is to try to emulate its success.

Robin M Mills is a Dubai-based energy economist and author of The Myth of the Oil Crisis