While the economy stumbles over the push of the judiciary, Israel is betting on an energy boom
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KARISH GAS FIELD, between Israel and Lebanon – Fifty miles off the coast of Israel, a giant oil rig floats on the sparkling blue waters of the Mediterranean Sea, processing natural gas extracted from thousands of meters below the surface.
Tied to the seabed with 14 cables, the 400-foot-long, 70,000-ton tanker resembles a floating city – crammed with employee dormitories, gyms, control areas and fortified panic rooms. The $2 billion project is overseen by a crew of 145 Israelis and foreign workers. They are trained to oversee on-site gas processing and respond to the unique security threats at an Israeli facility located just 15 miles from Lebanese waters, which Israel considers hostile territory.
“We’re doing this very quietly, but it’s having a significant impact on the Israeli economy,” said Shaul Zemach, CEO of Energean’s Israel subsidiary. The London-based natural gas company brought the plant online last fall following a landmark sea deal between Israel and Lebanon — a diplomatic breakthrough that also involved the Iran-backed militant group Hezbollah.
Speaking over the whirring noise of machinery, Zemach pointed to two steel pipes that carry fuel to the oil rig, where it will be processed and exported to Israel’s power grid — where gas accounts for more than 70 percent of electricity.
Natural gas has turned Israel, once a resource-poor country, into a regional energy powerhouse. The discovery of significant offshore fields a decade ago has enabled the country to become largely self-sufficient and has opened up lucrative export opportunities. Demand is particularly high now as European markets struggle to replace Russian oil and gas imports that have been disrupted by the war in Ukraine.
But Israel’s gas push also comes with a rise in regional tensions – from the West Bank to Lebanon – and an unprecedented domestic political crisis as the country rocks mass protests against the government’s controversial plan to weaken the Supreme Court.
After lawmakers passed the first phase of judicial reform last month, the value of the shekel plummeted and the Tel Aviv stock market plummeted. Bankers and business leaders warned of capital flight, and Moody’s downgraded Israel’s credit rating on the grounds of “deteriorating” governance.
Prime Minister Benjamin Netanyahu has repeatedly dismissed warnings of impending disaster, claiming that Israel has alternatives – including natural gas – to weather the turmoil.
“We are increasing gas exports to Europe. “We opened a tender for gas exploration in Israel worth hundreds of billions,” he said Wednesday in a video posted to Twitter, recently retitled “X.” “Israel is becoming an energy superpower. … Who would have believed that?”
There are an estimated 1.75 trillion cubic feet of reserves in the Karish field alone; It already produces 35 percent of the gas consumed by Israel. Zemach reckons there could be more wells further down, two to three kilometers (more than a mile) below current production levels.
But despite European demand, experts believe that Israel’s relatively young gas sector – expected to be worth US$55 billion by 2064 – will represent only a small part of Israel’s economy for the foreseeable future.
“Netanyahu is trying to draw attention to the gas sector and the other resources that he says will help the Israeli economy,” said Eldad Ben Aharon, an expert on Israel’s foreign policy and a researcher at the Frankfurt Peace Research Institute. “But if we zoom out and look at the potential of gas versus the deteriorating economy, it’s unconvincing.”
There are no guarantees that the infrastructure required for drilling and multi-tiered regional collaboration will keep up with forecasts, he said. Even in the best-case scenario, he said, profits from the gas business could nowhere near offset the economic damage caused by Netanyahu’s judicial reform — particularly in Israel’s tech sector, which accounted for 54 percent of the country’s export market last year and more than a year . tenth of its workforce.
Tech leaders have spearheaded street protests over the past seven months, urging Netanyahu to back down or risk permanent economic damage. According to a report by the Start-Up Nation Policy Institute last month, investment in tech companies has fallen 68 percent since the beginning of 2023, the slowest pace of investment since 2018. Many tech companies founded by Israel are moving their money and employees abroad.
Natural gas exports are part of “Netanyahu’s multidimensional approach to ‘diversifying’ the economy,” said Eran Etzion, the former head of planning at Israel’s foreign ministry. But the “numbers don’t add up”.
Netanyahu is also trying to build global partnerships as an alternative to those with the United States and Europe, Etzion said, viewing gas development as an opportunity to forge new ties with once-hostile neighbors. That includes Egypt, which has the region’s only liquefaction plants needed to export the fuel to Europe and the Persian Gulf — where Israel has expanded ties in recent years under the US-brokered Abraham Accords.
Earlier this year, the United Arab Emirates’ state-owned oil and gas company and British Petroleum (BP) announced an offer to acquire a stake in NewMed, one of Israel’s largest gas companies. In 2021, the UAE sovereign wealth fund acquired a US$1 billion stake in Tamar, Israel’s second largest oil field.
“The atmosphere has completely changed,” said Hezi Kluger, a former Israeli energy minister who oversaw the development of the sector in the early 2000s.
He said new deals with international companies like Chevron – the California-based energy giant that acquired Israel’s largest natural gas company for about $4 billion in 2020 – had received tacit approval from Saudi Arabia. Over the past few decades, Kluger says, multinationals have actively avoided doing business with Israel so as not to jeopardize their ties with the Saudis.
While natural gas companies can expect near-term profits during Ukraine’s war, experts predict the market will peak within a decade as Europe transitions to renewable energy. The Israeli companies describe themselves as interim suppliers and step in until new energy sources can be established on a large scale. Demand is expected to rise as European nations work to sever ties with Russian energy giant Gazprom.
Qatar has emerged as a major supplier of liquefied natural gas (LNG) to Europe and plans to increase its export capacity by more than a third by 2026. The US increased LNG exports to Europe by 141 percent last year and plans to do so for a further 40 percent increase in the coming years.
The Palestinians have ambitions of their own, including a $1.5 billion natural gas exploration project off the coast of Gaza. The project has been blocked by Israel for more than two decades, but a deal is expected to be finalized with Greek and Egyptian partners in the coming months.
Gas exports could ultimately bring in millions of dollars for the financially strapped Palestinian Authority, which is struggling to contain mounting violence between Israeli forces and a new generation of militants across the West Bank.
Israel, meanwhile, is on the verge of being drawn “into a conflict” with Hezbollah on its northern border with Lebanon, Tzachi Hanegbi, head of Israel’s National Security Council, told reporters this week.
From the center of the Mediterranean, Israel’s internal turmoil and regional conflicts seem distant. For Zemach, his rig is a rare symbol of collaboration and a reason for hope.
“Natural gas allows us to talk about the Mediterranean as a common gas market, where extensive regional cooperation to promote stability is possible,” he said.
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