'Israel can make do without Egyptian gas, but with cost'

Speeding up Tamar development process and introducing alternative energy solutions are possible answers to energy sustainability.

By
April 21, 2011 02:56
Leviathan gas site.

Leviathan drill 521. (photo credit: Albatross)

If Egypt were to decide to cut off the supply of natural gas to Israel in the near future, the country would be adequately prepared to survive on its own energy resources – although not necessarily without reverting to an increase in fossil fuel consumption, according to regional experts.

In 2010, 36 percent of Israel’s power generation supply was fueled by natural gas, 62% by coal, 2% by oil and only 0.1% by renewables, said Dr. Amit Mor, CEO and energy specialist at the Eco Energy consulting firm. Of the 5.1 billion cubic meters of natural gas, approximately two-fifths came from the Egyptian East Mediterranean Gas (EMG) pipeline, with the rest coming from Israel’s own depleting Mari-B field, off the coast of Ashkelon.

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Mor estimates that by the end of the decade, Israel’s total annual demand for natural gas will reach 10 billion cubic meters.

“The shift from coal and oil to natural gas by the Israel Electric Corporation is the fastest in the world – from zero in 2004 to 36% today,” Mor said.“According to our forecast at Eco Energy, we are going to be at around 70% natural gas in power generation by 2020, nine years from now, which is no time. This is the fastest shift or transit to natural gas.”

But with this shift comes a perpetual need to increase the supply, a process that would likely be disrupted if Egypt shuts the pipeline to Israel, as it could take time for the Tamar field off the coast of Haifa to come online after the depletion of the Mari-B field, Mor and other experts said.

“If [the Egyptian] gas is cut off tomorrow, you’re talking about a year and threequarters supply [left in Mari-B],” said Dr.

David Wurmser, founder of the Delphi Global Analysis Group and a consultant to Israel’s offshore drilling teams, as well as a former senior adviser on the Middle East to then-US vice president Dick Cheney.

“The timeline gets very narrow if the gas is cut off soon.”

There are differing estimates as to when the Tamar field will be ready for use, ranging from the middle of 2012 to the beginning of 2013, according to Prof. Brenda Shaffer, an expert on energy policy and management at the University of Haifa, who added that “probably no one really knows exactly.” If Tamar is online by the early end of that range, the country might avoid a potential lapse, she said.

“Tamar was discovered in January 2009, and we wasted a lot of time because Israel is focused on the prices and the taxes – no one has really pushed fast enough to get Tamar developed,” Shaffer continued. “Now things seem full steam ahead, but we did lose a lot of time.”

Tamar alone holds enough gas to supply the country for at least 10 to 12 years – depending on the rate at which it is consumed, which is likely to increase. With the eventual addition of the neighboring Leviathan gas field, Israel could have up to 30 to 50 years’ worth, according to Shaffer.

“The problem is the short-term,” she said.

But even if Egypt turns off the natural gas supply and there is a gap between Mari-B’s closing and Tamar’s opening, Israel will by no means experience a blackout – it may just have to increase consumption of less desirable energy sources.

“If there is a disruption we have other means to produce power,” Shaffer said. “No one noticed power disruptions in the last month and a half. I think that’s an amazing feat of the IEC.... They have the backup system.”

That backup system uses mostly coal and oil.

“If Egypt stops the flow, Israel can survive nicely without Egyptian gas in the short-term until Tamar will come on board,” Mor agreed. “Although much more costly and more polluting, the power stations can run on diesel oil and heavy fuel oil.”

These sources, plus coal, were key during the March weekend when the Mari-B field shut down due to a malfunction, overlapping with the five-week stretch in which the Egyptian pipeline was inoperative following a terrorist attack, according to Shaffer.

“All those things kicked in with no electricity disruption,” she said. “The problem is that it’s more expensive and produces pollution.”

One solution to a supply gap aside from reverting to fossil fuels would be to quickly develop the country’s small natural gas fields – such as Noa, in Israeli territory near Mari-B, or Gaza Marine, which would need to be done in conjunction with the Palestinians, as “pollution knows no borders,” Shaffer said. The government would need to “move fairly aggressively” to develop Noa, according to Wurmser, who doesn’t see such a move as likely.

Another option would be importing liquefied natural gas (LNG) from a Norwegian or American company, all three experts explained.

“It’s very expensive and has only been tried in a couple places in the world, but it would give an option of using natural gas and keep Israel from being vulnerable to Egypt,” Shaffer said.

Mor estimated that it would take less than two years to install a floating regasification and storage unit, which would be anchored offshore and connected to the grid via a pipeline. This semi-permanent unit, whose gas supply would be replenished constantly by tankers, would require about $200 million to construct, but would be “another means to increase Israel’s energy security,” even when Tamar is up and running, Mor said.

A system like Tamar, which will be 90 kilometers offshore from Haifa with a 150-kilometer pipeline to Mari-B, would not be invulnerable to mechanical faults or security threats, both Mor and Wurmser agreed, and an LNG addition would therefore provide a clean “insurance policy,” according to Mor.

The experts disagreed, however, over whether Egypt was likely to actually turn off the nozzle.

“I personally think that the Egyptians have all high motivation to continue to supply the gas for geopolitical, technical and commercial reasons,” Mor said. “If they stop supplying gas to Israel they will give up an income of about $1 billion a year, which is significant to Egypt.”

In comparison, he cited the Suez Canal as bringing in $2-3 billion annually.

“Having said that, the political risk continues to prevail and has even increased following the revolution,” Mor acknowledged.

Wurmser sees the situation with Egypt as decisively grim.

“As far as the potential for the Egyptian cutoff goes, I would not look at current statements from the government as definitive. I would look at current trends – and that is that the gas supply is in danger,” he said.“I think the Israeli government needs to think broadly about how to develop the entire basin, not just field by field.”

Yet if Egypt continues to supply Israel, the experts are hardly unanimous about whether Jerusalem should continue to purchase gas from Cairo once Tamar is fully functioning.

“It makes absolutely no sense that Israel would continue importing natural gas from Egypt,” Shaffer said. “It doesn’t make sense in terms of economics or supply security. In the big picture, with Leviathan and Tamar, Israel can supply itself with natural gas for 30-50 years.”

Mor, on the other hand, views Leviathan as a potential source for export to the Far East, while he sees the Egyptian gas supply as “very important to Israel” due to domestic economics.

“It will enable competition in the market between the Egyptian supply and Tamar,” he said.“If Egypt halts the flow of gas, it will increase the monopolistic power of Tamar as a major supplier, thus [contributing to the rise] of the gas price in Israel, which means a faster increase in the price of electricity, since gas is a major source of electricity. For economic reasons, it is important for Israel to have diverse sources of supply.”

But for now, as we stand on the brink of an uncertain future regarding Egyptian gas, the experts say that if the supply is cut off, Israel would emerge not entirely unscathed, but also not in dire straits.

“If, let’s say, tomorrow Egyptian gas stopped flowing, it wouldn’t be nice, but Israel’s electricity production would not be affected significantly – just the consumers would pay more for electricity,” Mor said.

Shaffer agreed.

“The last crisis showed that the electric system was set up in a proper way, that we can weather these problems – it seems like a high priority to the Ministry of Infrastructures,” she said.“I’m glad to see that the government recognizes the important benefits of natural gas consumption and doesn’t look for the quick fix of oil and coal.”


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