Vast gas fields found off Israel's shores cause trouble at home and abroad

Newly discovered huge reserves of gas are causing tensions between Israel and its neighbours, and tensions within Israel itself over how much the government should be taxing this bonanza.

An oil rig operated by Noble Energy drilling for natural gas on the Tamar site off the coast of Israel.
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JERUSALEM // Underneath 1,700 metres of water and another four kilometers of seabed lies what many in Israel hope will be a source of newfound wealth and security.

Two enormous natural gas fields, containing as much as 25 trillion cubic feet of natural gas, have been found off the country's coastline.

Oil companies envision substantial profits. Politicians talk of national energy independence and, as a result, bolstered security in an unfriendly region.

But the bonanza has generated domestic controversy. Corruption in the burgeoning industry is reportedly rife, with Israeli authorities struggling to rein it in.

Meanwhile, oil companies are at loggerheads with officials apparently intent on imposing higher taxes on profits.

Israeli academics, for their part, are warning the country to avoid the economic troubles that so often afflict oil and gas exporters.

Brenda Shaffer, a professor of political science at the University of Haifa, said: "It's kind of like arguing about the seating on the Titanic - where everyone's talking about where they're going to sit, where the band's playing - but in reality there's a much bigger problem at hand."

Research suggests there may be as much as 122 trillion cubic feet of natural gas waiting to be tapped off the coasts of Syria, Lebanon and Israel, as well as Gaza, according to a study last year by the US Geological Survey.

The crown jewel of Israel's recent finds is the Leviathan field, with its estimated 16 trillion cubic feet of natural gas, valued at more than US$95 billion (Dh349bn). However, Lebanon believes it also has a claim to the Leviathan field.

The countries are technically at war and do not recognise either land or sea borders. Israel has simply unilaterally declared its maritime boundaries with Lebanon. Based on its boundaries on land, Israel established a maritime zone that veers well to the north, an area that encompasses all the known major gas fields.

Giora Eiland, Israel's former national security adviser, who is now a consultant to companies involved in the gas exploration, said: "It means all the new gas fields should fall in the waters of Israel."

Lebanon has responded by submitting to the UN the coordinates of what it says are its maritime boundaries. It has also lodged a formal protest with the world body against Israel.

A UN spokesman, Martin Nesirky, said the Lebanese request was being studied by the Division for Ocean Affairs and the Law of the Sea, and other UN bodies.

He said UN experts are reviewing Lebanon's submissions "with the aim of being as helpful as possible so Lebanon can make sure, if it wishes to stake a claim, to make its claim clear, that it can do so in the right way and the right context." Regardless of what they say, some in Israel say the disputed nature of region and a lack of clarity over international law means the Jewish state should "damn the torpedos" and go full speed ahead.

Shmuel Bar, a director at the Institute of Policy and Strategy in Herzliya, said borders are "a matter of agreement between countries, and for countries that don't agree to submit themselves to law, then the whole issue of international law isn't very relevant."

Lebanon's Shiite movement, Hezbollah, and its primary backer, Iran, on the other hand, have no doubt as to who owns what. Iran's ambassador to Lebanon, Qazanfar Roknabadi, went so far as to claim in November that most of the Leviathan find belongs to Lebanon.

Israeli officials bristled at such suggestions. Israel's minister of national infrastructure, Uzi Landau, responded: "We will not hesitate to use our force and strength to protect not only the rule of law but the international maritime law."

Israel is now trying to develop its gas fields faster than nearby nations. Production at the country's other recent find, the Tamar gas field, which has an estimated 8.4 trillion cubic feet of natural gas, could begin as early as next year. Gas could start flowing from the Leviathan field by 2016.

Israel is also mulling plans to sell its gas to Europe, possibly through Cyprus or via a pipeline to Greece. This, so the thinking goes, would make it politically difficult for foes to dispute the country's claim, let alone attack gas infrastructure, since other nations would be depending on it.

Giora Eiland, a retired major general in Israel's military, former head of the National Security Council and a consultant to companies involved in the gas exploration, said: "Our potential enemies will be much more careful to do something against a facility that Europe has an interest in."

However, Israel's aggressive stance risks further straining relations with a formerly dependable ally, Turkey. Ankara has expressed concern about Israel's recent cosiness with its historic regional antagonists, Greece and the Greek side of divided Cyprus.

Turkey's ally on the other side of the divided island, the Turkish Republic of Northern Cyprus, fears it could miss out on its fair share of the gas after Israel and Nicosia signed an agreement last month to devide the 250 kilometres of sea that separate them.

The Leviathan field and other gas finds are also making waves in Israel's domestic political and business circles.

Once it became clear last year that the energy companies working Israel's waters were going to make enormous profits, politicians began talking about imposing higher taxes.

To attract energy investment, existing oil and gas royalty laws, in place since 1952, have been much lower than most other energy-producing Western countries. Israel's finance minister, Yuval Steinitz, appointed a special committee to review the tax laws.

Energy firms, including US ones such as Noble Energy, which operates the largest fields, were aghast, arguing that any such move could dissuade any further investment in Israel's energy sector. They launched an aggressive lobbying effort, even enlisting the help of former US president Bill Clinton.

However, Mr Clinton's famous charm appears to have fallen short. In early January, the Steinitz-appointed committee finally gave its much-awaited recommendations: a doubling of the government's share of oil and gas proceeds, from an estimated 30 per cent to as much as 62 per cent.

Energy firms were furious, but Mr Steinitz answered that there was "no reason why gas exploration companies in Israel should earn much more or even double than in the UK or Canada".

Many Israelis seem to agree with their finance minister, saying foreign firms should not take the lion's share of the windfall.

Yizhaq Makovsky, a geophysicist at the Leon Charney School of Marine Sciences at the University of Haifa, said: "Most of the relevant work is being done abroad. There are very few Israelis seriously involved in this industry. This is one issue that's not so great for Israel."