Sunday, January 18, 2009

Lets Hope its Just A Little Gas

Maybe I am getting ahead of myself here, but I have always felt that Israel was fortunate to have never discovered serious quantities of oil or gas. This morning, a group of companies made an official announcement regarding conclusive results of tests indicating considerable natural gas deposits in the eastern Mediterranean. While excited at the prospect of energy independence and some extra change for the government to dole out, I am actually quite anxious.

Energy independence is the dream of any modern nation, but too much “independence” is a recipe for economic disaster. Specifically, I refer to the deleterious affects caused by the “rents” that flow to government coffers when natural resources are sufficient for export. Admittedly, Israel is too advanced and diversified an economy to suffer from the “Dutch Disease” of other Middle East economies, which distorts development and in a way that impedes the growth of non-energy industries. However, with populist tendencies now evident in all major political parties in Israel, I genuinely fear the financial mismanagement and irresponsible policy making that will likely result from too much energy independence. I anticipate a situation in which demands for reform, privatization and good government, will give way to demands for populist hand-outs across the political spectrum(now even second and third cousins of the Israel Electric Corporation’s employees will get free electricity for life).

There are few energy rich economies that responsible nations would like to emulate, although there may always be a tinge of envy. Only several months ago, it would have been considered blasphemous to speak of such ruin with the price of a barrel of oil reaching $140. But now that it has plummeted to $35, government budgets are imploding, inflation souring, and currencies swooning. Moreover, unrest is likely to ensue when these populist authoritarian governments are unable to meet the rising expectations of their citizens. I am of course thinking of Russia, Saudi Arabia and Venezuela, among others. While counter examples exist, I am not sure future Israeli governments will be able to take advantage of energy riches and follow in the footsteps of Norway and Canada. I know that this might be different because there is no government owned company calling the shots, but I am still anxious.



Gazprom's new headquarters building will be two times the size of the Eiffel Tower.

Lets just hope that the gas discovery off the coast of Israel is enough to meet Israel’s energy needs, and not much more(not enough to build the tallest building in the Middle East). And lets hope that the next great discovery in Israel is the software that facilitates the discovery of oil/gas in other regions of the world, or even better new solar cell technology that allow Israel to harness the sun to be completely independent (could we then be a light among the nations?).

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