TEL AVIV - Israel couldn't believe its luck when huge natural-gas deposits were found in its waters five years ago. There was hopeful talk of cementing regional peace with pipelines to energy-hungry neighbors, and of plentiful gas fueling a new economic boom.
Instead, what happened since then has spotlighted how unprepared Israel was to deal with newfound energy riches even as it prides itself on being a modern, investor friendly economy.
Israel oil and Gas fields
Source: Delek Energy
Political feuding and bureaucratic infighting have delayed for years the development of the biggest gas field and now are threatening Prime Minister Benjamin Netanyahu's fragile coalition government.
No development work started so far on the Leviathan field, the largest in the Mediterranean and estimated to hold 22 trillion cubic feet of gas—enough to supply a country like Turkey for more than a decade. Amid uncertainty about government regulations, no serious search for likely additional gas and oil fields in Israel's waters is under way, either.
And with global oil and gas prices plummeting this year, the country increasingly faces the risk of missing much of its expected energy bonanza altogether.
MIDDLE EAST CROSSROADS
So far, regulatory and government-caused delays in the gas sector have cost the country some 100 billion shekels, or $ 26.5 billion, according to Israeli Infrastructure and Energy Minister Yuval Steinitz.
"We need the money, and it is a lot of money. We need the energy security, and we can, for the first time in our history, create some serious economic linkages in the axis of peace—Egypt, Israel and Jordan."
Attempting to create a stable environment that would allow the industry to take off, Mr. Netanyahu's government approved on Sunday a comprehensive gas-industry framework. It would, among other steps, set aside antitrust regulations that threw the sector into disarray late last year.
In December, the regulator, who has since submitted his resignation, argued that the two main gas companies operating here— Noble Energy of Houston, Texas, and Delek, a publicly traded Israeli conglomerate—can't participate in development of both main gas fields because that would constitute a monopoly.
But Mr. Netanyahu's shaky coalition, which has a one-seat majority in parliament after March elections, includes politicians elected on pledges to narrow the chasm between rich and poor and lower the cost of living. They have been ambivalent about the gas legislation, which the opposition has criticized for offering too many advantages to Noble and Delek.
One of Mr. Netanyahu's ministers voted against the gas deal on Sunday and three others—who also hold parliament seats—abstained, citing conflict of interests because of their personal links to the gas industry. Another cabinet member—the economy minister—has so far refused to exercise his power to waive the December antitrust ruling—a key part of the framework—unless the agreement is approved by the entire parliament.
With at least three lawmakers already abstaining in Sunday's government vote, Mr. Netanyahu now lacks a majority in parliament for the plan unless he manages to secure the backing of some opposition lawmakers.
"We don't have that much gas," said Ksenia Svetlova, a parliament member from the main opposition party, the center-left Zionist Union. "First we must ensure the stability of our domestic market, lower the prices, and then think about exporting the gas."
For much of its modern history, Israel relied on expensive imports of oil and gas. Prime Minister Golda Meir famously complained in the 1970s that Moses had dragged the Hebrews "40 years through the desert to bring us to the one place in the Middle East where there was no oil."
All that changed when Noble in 2009 announced a huge deep-water gas find west of the city of Haifa, estimated to hold 10 trillion cubic feet. A consortium led by Noble and Delek developed the Tamar field, which is sufficient to meet Israel's domestic needs for at least the next 20 years. It started pumping the gas onshore in March 2013 and it now accounts for some 60% of Israel's electricity generation.
The discovery of the even bigger Leviathan field in 2010, however, spurred a backlash in a country that wasn't used to managing such natural wealth. Many Israelis protested that the companies didn't pay enough in taxes and royalties to the state, and complained about the prices charged for this gas. Some called for nationalization. A series of regulatory and government decisions on issues such as taxation, exports and prices followed suit, often contradicting each other—and eating away at Noble's and Delek's income.
"It's a costly learning curve that we have to go through. There was no experience in Israel on the state level or on the regulatory level in how to deal with this—it is a new field for us," explained Oded Eran, a fellow at the Israel's Institute for National Security Studies and a former ambassador to Jordan.
Five years of delays in developing Leviathan, which would have provided a backup to Tamar's gas supply, have also created a point of vulnerability, one of the reasons why Mr. Netanyahu is pressing for the legal framework to be passed.
Pouring billions of dollars into developing Leviathan, however, only makes sense if its gas can be exported. While the oil companies have already signed preliminary agreements to export to Jordan and Egypt, the regulatory delays have given time to political opponents of any cooperation with Israel—particularly in Jordan—to mobilize against the deal. The political uncertainty has also scared off some potential international partners.