Israel Finds Natural Gas, Controversy Ensues

January 10, 2011 Updated: September 29, 2015

[youtube]9WpT9widKgU[/youtube] Israel Finds Natural GasIsrael has always been known as a country poor in natural resources. This may change following recent discoveries of natural gas and oil off Israel’s shores in the eastern Mediterranean. But before the reserves can be fully exploited, the government, industrialists, and civic organizations need to decide on the way forward.

Only in recent years, were profitable drilling sites discovered. During 2009, a big deposit of natural gas was discovered off the northern shores of Israel and is supposed to be in production by 2013. Last August, the United States Geological Survey (USGS) estimated that there are 122 trillion cubic feet of undiscovered, technically recoverable, natural gas off the eastern shores of the Mediterranean. This potential has an estimated worth of $450 billion, according to the USGS. Shifting energy use in Israel to domestic gas has already saved the state $5 billion, according to research by the Knesset Research Center.

Everyone wanted a piece of this lucrative pie. Following these findings, a feud between sectors erupted. The government of Israel started to look into ways to increase the government take of these drillings. The drilling companies objected, and civic and environmental organizations have warned that the country should not sell its resources to tycoons too cheaply.

A special committee was appointed by the government to examine the taxation of gas and oil. The committee presented its final report on Jan. 3 and recommended to keep the current taxation regime in place, dating from 1952, but suggested adding a progressive levy on future profits from the drilling.

The government did not accept the recommendation. In the coming week, the Prime Minister Benjamin Netanyahu is going to speak to the different ministries and relevant companies to formulate a decision on the subject to place before the government for approval. During the weekly Cabinet meeting on Sunday, the prime minister indicated he is in favor of establishing a national fund to utilize the profits of gas reserves for several goals, “with security and education foremost among them."

The companies involved in the drilling objected to any alteration to the current legislation, arguing that after they had taken the financial risk to search for deposits and develop them, it is not fair for the government to change their profit prospects of the projects. Another claim made by the companies is that increasing taxation on the projects will decrease future incentive to develop the gas sector.

“Discovering large deposits of gas in the state of Israel is a strategic and economic leapfrog for the state of Israel,” said the Israeli Institute for Energy and Environment in a formal opinion submitted to the committee. “It decreases the dependency of Israel in foreign energy resources, improves the state's balance of payments, and improves the competitiveness of Israeli products in the world. All of this was accomplished with minimal involvement of the state, with all the risk falling on the entrepreneurs and investors. The state should do what it can to enable the continuation of the use of gas.”

Some civic organization expressed its disappointment with the recommendations, warning of too close a connection between politics and money. Ometz (“Courage”), a corruption watchdog organization, claims that during the works of the committee, energy companies and lobbyists pressured politicians to change the recommendations in favor of the gas companies. Since the publication of the recommendations, claims Ometz, the pressure have increased.

Some environmental organizations, like Adan, Teva VaDin (“Man, Nature, and Law”), claim that it is necessary to make sure taxation on the gas companies is in proportion to the possible environmental damage of the drilling. The environmental organization has accused the committee of appeasing the capitalists.