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* IEI says could produce 50,000 bpd at cost of $35-$40/bbl
* Rupert Murdoch, Jacob Rothschild are key investors
By Ari Rabinovitch
JERUSALEM, April 27 (Reuters) - A subsidiary of U.S.-firm IDT Energy (IDT.N) is leading a push in Israel to tap into the country's vast deposits of oil shale.
The company, Israel Energy Initiatives (IEI), has already invested "tens of millions of dollars" in preparing a pilot project it hopes to launch by the end of 2011, CEO Relik Shafir told Reuters.
"If successful, in a few years IEI could start producing 50,000 barrels of oil a day, or 20 percent of Israel's consumption, for 30 years," Shafir said.
The division of IDT that owns IEI is called Genie Energy, and it has already brought investments from financier Jacob Rothschild and media mogul Rupert Murdoch. Together they own a 5.5 percent stake worth $11 million, according to a company statement from November.
Murdoch, upon joining Genie Energy's advisory board last year, said the group would "spur a global, geo-political paradigm shift by moving a major portion of new oil production to America, Israel and other Western-oriented democracies."
Rothschild made similar comments.
Israel's oil shale deposits have been known about for decades. A 2005 U.S. Geological Survey report listed Israel among 14 countries with serious oil shale potential but they only became commercially viable since the price of oil skyrocketed. U.S. crude CLc1 is currently above $110 a barrel.
Israel's Infrastructure Ministry says subsurface oil shale covers 15 percent of the country, and the amount in the area of IEI's licence alone is comparable to the oil in Saudi Arabia.
Relik said his company could produce high-quality oil on a large scale at a cost of $35-$40 a barrel.
There is strong government support to pursue oil shale, which together with newly discovered off-shore natural gas fields, would move Israel closer to energy independence. But there are also some major obstacles.
IEI's exploration licence covers an area near the biblical Ellah valley just outside Jerusalem where it is believed David fought Goliath. Residents and powerful environmental groups oppose even the small pilot project.
Further complicating the progress, a small oil shale mine in the southern Negev desert run by Israel Chemicals (ICL.TA) caught fire earlier this year. It took weeks to extinguish the blaze, causing environmental damage and fueling opposition. Since then, the company said it might close the mine.
IEI says it uses a much newer technology, similar to what oil giant Royal Dutch Shell (RDSa.L) uses in the western United States and is trying to introduce in neighbouring Jordan. In fact its chief scientist, Harold Vinegar, for years held the same position at Shell.
Most of the work will be done below the surface. In the pilot, IEI will drill 250-300 metres deep, inject heat, and come away with five barrels a day. It will simply be graded up for the commercial stage.
Israel's Infrastructure Ministry told Reuters it would consider granting further licences for oil shale exploration, though other foreign firms will likely wait to see IEI's fate.
Editing by Jason Neely