Israel's Other Source of Natural Gas

Yesterday, as you prepared to light up your barbecue grill, saboteurs lit up a pipeline in the Middle East – again.

Natural Gas Pipeline Explosion
“You keep repairing it? We’ll keep blowing it up!”

For the third time this year, the natural gas flowing from Egypt to Israel has been cut off.

This time masked men stormed a pipeline station, tied up security guards, planted explosives, then ran away and set off them remotely by firing gunshots.

Again, the source for 40% of Israel’s natural gas is out of commission.

Ironically, the perps might not even have it in for Israel. Both times before, the saboteurs were Bedouin tribesmen who feel the Egyptian government discriminates against them.

No matter, the results are the same. “In the long term, it looks like Egypt won’t be a reliable source of gas,” says Deutsche Bank analyst Richard Gussow, based in Tel Aviv.

No, probably not.

As with past attacks, coal-fired plants and diesel generators fill the void to keep the lights on in Israel. The problem is that the source for the other 60% of Israel’s gas – a project called Yam Tethys – will likely run out of reserves by 2014.

Even before this latest explosion, the Israeli Public Utility Authority warned the unreliable Egyptian supply is one reason Israeli electricity rates could rise 20% next year.

“Electricity comprises a major input in industrial production, as well as for commercial enterprises and households,” says Amit Mor of the Israeli consulting firm Eco energy. “Such a dramatic increase will have a macroeconomic impact, and will cause a significant increase in the consumer price index.”

“How many times do you have to bump your head on your bed frame until you fix it?” asks Professor Brenda Shaffer at the University of Haifa. “It’s another reminder that in all the considerations about what Israel needs for consumption, it shouldn’t count on the Egyptian supply.

“We don’t even know what’s going to happen in Egypt in terms of government,” she adds, with the first elections of the post-Mubarak era coming in September.

For all the continuing angst of the Middle East, Israel is still among the top third largest economies in the world. And among the largest in the region. Bottom line: Israel needs a new source of gas – and fast.

Fortunately, it has one:

Map of Leviathan Offshore Oil Field

And that means opportunity.

The Leviathan offshore field we’ve been discussing is one of the biggest gas discoveries in the last 25 years – with 16 trillion cubic feet. Our resident geologist and editor of the Energy & Scarcity Investor, Byron King, has been eyeing developments there for some time, because he says the region has all the markers of a major “petroleum system.”

“It has analogues,” he explains, “with other of the world’s best hydrocarbon-rich areas. There are salt layers similar to, but not as thick as, the pre-salt of Brazil. There are structures and stratographic traps, like off West Africa, with oil plays like Angola and Namibia.

In other words – potential on a scale with Brazil’s offshore Tupi find.

Addison Wiggin
for The Daily Reckoning