How will "petroshekels" change the world?

The standing joke among Jews is, "If we're the Chosen People, why didn't God promise us some land with OIL under it?" As it turns out, He did.

Recent discoveries -- over the past several years -- put the amount of natural gas reserves in Israeli territorial waters at as much as 26 trillion cubic feet. That's roughly triple what Israel will consume over the next 20 years, meaning much of it can be exported. But compared to Egypt's 77 tcf of gas reserves, Israel's natural gas discoveries are not quite Earth-shaking.

Currently, Israel imports coal for domestic electricity, supplemented since 2004 by natural gas from the offshore Mari-B field twenty-five miles from the southern port of Ashdod. More gas comes from Egypt, arriving near Ashdod via an undersea pipeline. Indeed, despite the excitement over the Leviathan field, Israel signed a new twenty-year gas purchase agreement with Egypt earlier in December to supply several industrial entities, including the Dead Sea Works and the Haifa refinery.

If the riches of the Leviathan field are confirmed, production could begin by 2016. In that scenario, Israel could eventually become a net energy exporter despite still needing to import oil to refine into gasoline and other products. Apart from notional energy independence, using natural gas from its own fields would save Israel $4 billion in imports annually while boosting gross national product. Plentiful indigenous hydrocarbon supplies could also prompt the development of new industries. For the time being, though, Israel must resolve a variety of problems before it can begin reaping the full benefits of the new discovery.

However, Israel sits atop another energy resource: oil shale. Up until the end of 2010, it was believed that Israel had about 4 billion barrels of oil in extractable oil shale. Given that the Saudis produce just under 10 million bbl/day, those 4 billion bbl are equivalent to about 400 days of Saudi Arabia's production.

But new discoveries of oil shale in Israel and new techniques of extraction put the latest estimates of available oil from Israeli shale at 250 billion bbl - just shy of Saudi Arabia's proven reserves of 260 billion bbl.

What is less well-known, but even more dramatic, is the work being done on this country’s oil shale. The British-based World Energy Council reported in November 2010 that Israel had oil shale from which it is possible to extract the equivalent of 4 billion barrels of oil. Yet these numbers are currently undergoing a major revision internationally.

A new assessment was released late last year by Dr. Yuval Bartov, chief geologist for Israel Energy Initiatives, at the yearly symposium of the prestigious Colorado School of Mines. He presented data that our oil shale reserves are actually the equivalent of 250 billion barrels (that compares with 260 billion barrels in the proven reserves of Saudi Arabia).

Independent oil industry analysts have been carefully looking at the shale, and have not refuted these findings. As a consequence of these new estimates, we may emerge as the third largest deposit of oil shale, after the US and China.

Moreover, Israel is developing extraction techniques that take the oil out of the shale while the shale remains underground, at per-barrel costs of $20 or less.

What would it mean to the world if Israel were able to produce oil at rates similar to Saudi Arabia?

1) Lower oil prices overall. More supply would allow oil prices to fall to levels more consistent with historical patterns. Cheaper oil would help the world's industrialized economies to grow.

2) A loosening of OPEC's stranglehold on world oil markets. Any significant non-OPEC production reduces OPEC's leverage and provides a safety valve against production restrictions by one or more OPEC nations.

3) A flip in American foreign aid payments. Israel would no longer need aid from the USA and would be able to buy American military hardware for cash.

4) A revision in geopolitical and global military postures. Unlike oil from the Persian Gulf that has to transit the Suez Canal or circumnavigate Africa, Israeli oil can be delivered to tankers in the Mediterranean. Consider the way Europe reacted to the potential disruption of oil production in Libya, an unstable and hostile producer in the Mediterranean; the value of a politically stable and friendly oil source in the Mediterranean would cause the West to put more pressure on the Arab world to declare peace with Israel and cease threatening a valuable energy exporter. It would also change the calculus with respect to the threat Iran and its nuclear program pose to Israel.

5) A potential recession in global terrorism. If the West uses Israel's rise as an oil exporter as an impetus to stand up to Iran, the Iranian regime may find it too costly to continue exporting terrorism via Syria to Hezbollah, Hamas and other groups around the world. Without Iranian sponsorship, jihadist movements in many places would become too weak to stand up to more moderate movements. And to the extent that Israel's competition with Saudi Arabia in the oil markets and its new geopolitical importance made life harder on Saudi and other Gulf oil sheikhs and emirs, they would have less disposable income to spend on al-Qaeda and the Muslim Brotherhood.

Not surprisingly, Hezbollah wants to throw a monkey wrench into Israel's plans by prodding Lebanon to claim part of Israel's territorial waters for its own. But Israel has plenty of gas for its own use in undisputed waters and has the technology to defend its claims against Hezbollah attacks by missiles or suicide boats. And Hezbollah can't make any claim over Israeli oil shale.

Let's hope this brave new world opens up soon. We will all benefit.