NETANYA, Israel -- The huge reservoirs of natural gas discovered off the coast of Israel now flowing toward shore have the potential to transform the once-energy-strapped country into a lean, green manufacturing machine -- capable of supplying cheap, clean energy to its citizens, factories and vehicles for a generation.
Until now bereft of the petroleum bonanza that created the modern Middle East, Israel suddenly finds itself a major player in the Mediterranean, and perhaps even the European, natural gas market. The deepwater fields, first discovered in 2009 and 2010, will soon turn Israel into an energy exporter, putting the Jewish state in the enviable -- but very tricky -- position of trying to sell billions of dollars in surplus gas to neighbors who range from cool to downright hostile.
The questions are: To whom? And how?
Some Israeli leaders have suggested a "gas for peace" strategy whereby Israel, through the energy firms, provides gas at competitive rates to neighbors who want to buy. But they also acknowledge that some Arab nations might refuse gas -- at any price -- coming from Israel. For years, many oil-rich Arab nations have declined to supply oil directly to Israel.
"There is an interesting cocktail of possibilities," said Pinhas Avivi, the Israeli Foreign Ministry's political director of multilateral, global and strategic affairs. "The trick is to use the gas to solve problems, not create new problems."
The Israeli leadership will soon announce how much future production it will let the homegrown and U.S. firms export.
At the same time, politicians have begun to think about what to do with billions of dollars the state will take in royalties and taxes. Economists are advising them to stash the windfall in special funds for future pensions or rainy-day needs, as Norway does with its oil wealth, so as not to flood the Israeli economy with gas money. A rapid infusion of petrodollars could inflate the value of the Israeli shekel to the point that it hurts the nation's export competitiveness.
The first major Israeli gas field, called Tamar, began production in March, and natural gas is now flowing from sea to land. Prime Minister Benjamin Netanyahu hailed it as "an important step toward energy independence." Another, far larger offshore find, appropriately called Leviathan, the whale, holds a gas reservoir the area of Las Vegas and is set to go onstream in 2016. When it was discovered in 2010, Leviathan was the world's largest deepwater discovery in a decade; it held enough gas to supply Europe with all its needs for a year.
The finds represent a twist of fate for a country that until recently relied on imported coal, diesel and heavy fuel oil to generate its electricity. Israel has not only been vulnerable to the vagaries of the global energy market, but also to attack on the infrastructure that keeps it running.
Two years ago, Israel was getting 40 percent of its natural gas from Egypt. But after the popular uprising that toppled President Hosni Mubarak, Egypt's pipeline across the Sinai Peninsula to Israel was sabotaged by militants more than a dozen times. Egypt canceled its contract to sell gas to Israel last year.
Today, the pipeline that once served Israel and Jordan is empty. But maybe not for long, Israeli officials hope. "We could now envision selling gas to Egypt," Mr. Avivi said. "The pipeline is there. You can simply change the direction the gas flows."
Rising Egyptian gas consumption coupled with a steep production decline turned Egypt into a natural gas importer in 2012. So saboteurs might let gas flow, or the Egyptians might guard the pipeline more carefully.
Israel could export gas via pipeline to southern Europe via Greece, but then it would compete directly with Russian gas. "And we don't need to make new enemies," said a senior Israeli official, who agreed to speak about natural gas options on condition of anonymity because of the subject's sensitivity.