Run defense on gas?

With natural gas revenues about to flow, Israel might consider the Chilean model for avoiding infighting over military spending.

by Norman A. Bailey  |  July 19, 2012  |  ARTICLES

A country rich only in brainpower, such as Israel, can perfectly well base a successful economy on technological innovation, and Israel has done so with great success, passing unscathed through the recent global economic and financial crisis.

Soon, however, the country will be adding energy riches, especially natural gas, but also oil, to its economic arsenal. The first new gas well has just come on stream, and development will be rapid. Supplying the domestic market will obviously be objective number one, but export of gas will soon become feasible.

Some commentators have said that Israel will have difficulty finding investors to develop the deposits. This seems highly unlikely to me, since there are any number of US and Canadian companies with the appropriate expertise and access to credit. A more serious danger is that, because of shale gas development worldwide, the price of natural gas is declining and may continue to do so. That will obviously cut Israel's earnings from that source, but since the cost of exploitation of the offshore deposits will be less than the cost of extracting shale gas, there should still be a sufficient margin to reward investors.

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