A Saudi-Sized Oil Find... And a Rupert Murdoch-Backed Company Is in the Middle
What I'm about to say might shock you... Israel sits on nearly as much oil as Saudi Arabia.
You read this correctly, Israel -- a country the size of the state of New Jersey -- sits atop an estimated 250 billion barrels of oil.
To put the sheer volume of Israel's reserves in perspective, take a look at the chart below.
As the chart shows, that's roughly the same as Saudi Arabia, which is the 13th largest country in the world and almost exactly 100 times larger than Israel. If oil is worth $100 a barrel, then Israel has the ability to tap into $25 trillion worth of crude.
How did a country that's historically struggled to meet its energy demands stumble into one of the largest known petroleum reserves on the planet?
Like the bitumen in the oil sands, the shale in Israel is not particularly deep, and that's the rub. Were Israel's kerogen further below the surface, where the Earth's crust reaches 160 to 340 degrees Celsius, it would have been crock-potted into crude by now.
Had this happened, drilling a Saudi-scale gusher of a well would be about as challenging as digging an artisan well in a very shallow aquifer. But, alas, the kerogen is not quite deep enough, so it holds onto its bitumen like an oyster holds a pearl, and thus one of the largest petroleum deposits in the world has sat unmolested for 70 million years.
See, Israel relies on imports for 99% of their energy consumption. Consequently, it direly needs energy. As an attempt to become more energy-independent, Israeli Prime Minister Benjamin Netanyahu has backed an extraction project hosted by Genie Energy (NYSE: GNE) to recover petroleum from Israel's bitumen rich shale.
Their plan? Expand on a procedure that Royal Dutch Shell (NYSE: RDS-B) created in 1997 called the in-situ conversion process (ICP).
Shell's ICP basically creates a giant oven beneath the earth, encircling the petroleum-laden shale. Once the shale is hot enough (650 degrees Fahrenheit), given enough time, the shale oil and gas will be released from the rock whereby it can be extracted and refined into fuel.
Now you may be thinking this recovery method sounds expensive... but you'd be wrong.
Thanks to the engineer heading the project, Harold Vinegar, Ph.D, the ICP is cheap. By using the formation's own natural gas to generate heat, Vinegar and his crew have made the process relatively clean and inexpensive. The cost of extracting the crude could be as little as $35 a barrel.
Of course, this project is entirely dependent on the successful adoption of the ICP technology. If the method isn't viable, then the petroleum could sit for another couple million years or until someone else finds a better way to retrieve it.
That's why Genie Energy has devoted an entire division dedicated solely to the development of unconventional shale extraction methods like the ICP. This division, known as the Israeli Energy Initiatives (IEI), is working around the clock to get its alternative extraction processes up and running.
If the IEI can prove its methods are successful, then Genie Energy should be in the money. And I'm not the only one who thinks so... media mogul Rupert Murdoch recently reported he holds a 0.5% stake in Genie.
But don't get me wrong, I'm not saying Israel will become the next Saudi Arabia of oil. Even if they do come online, I'd be surprised if Israel, despite its gargantuan resources, ever exported much of its crude. The country's plan is to be energy-independent... not to be a major petroleum exporter.
So buying Genie isn't as much as a bet on Israeli shale as it is a bet on IEI's technology. Which, given the recent shale boom in the United States, has some pretty big implications. If IEI's production techniques work, then Israel will certainly benefit... but it will also be a boon to one of their biggest allies.
You see, there are 250 billion barrels of oil in Israel's shale. But there are an estimated 2 trillion barrels here at home. If the same recovery methods that are being used in Israel can be applied to the shale deposits in our own back yard, then that, my friends, would be a game-changer.
But let me warn you, a dark cloud currently resides over IEI's project in the Shefla basin.
Underneath the massive shale deposits lies one of Israel's most valuable commodities... water. Consequently, the environmental community has begun to voice opposition.
For Israel, water security is no laughing matter... If Israel's aquifers were threatened for any reason, then Israelis would likely leave the shale be and continue to import petroleum.
But fortunately, there's a massive layer of impenetrable rock -- hundreds of feet thick -- between the oil-bearing shale and the aquifer... this should keep the water from getting contaminated.
Risks to Consider: Even with the natural barrier though, the risk still remains that environmental backlash could shut the project down. That's why it's essential IEI continues to sell this proposal as the clean, safe and abundant energy source that it is.
Action to Take -- > But even with the risk, I still like Genie Energy. Its IEI initiative, the potential for short-term stock gains, and the potential for long-term results for investors willing to hold the shares as the shale boom takes off in this country are more than enough reasons to buy in.