'Israeli gas must first supply local market'

Energy expert Nick Butler says that revenue from natural gas will not start streaming in until at least 2020.

By NADAV SHEMER,
February 3, 2012 04:05
3 minute read.
Leviathan gas site.

Leviathan drill 521. (photo credit: Albatross)

Before rushing to export natural gas, Israel must first use the commodity to supply its own market, British energy expert Nick Butler said at the Herzliya Conference on Wednesday.

Israelis seem to be convinced that natural gas discoveries will lead to an immediate economic boom, but the fact is that even in a best case scenario revenues will not begin to stream in until 2020 at the earliest, Butler, a visiting fellow at King’s College London and a former BP Group vice president of strategy, said.

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The other panelists, including Israel Electric Corporation chairman Yiftach Ron- Tal, Eilat-Ashkelon Pipeline chairman Amos Yaron and Delek Drilling CEO Yossi Abu, spoke in favor of striking a balance between supplying local demand and exporting gas.

But Butler said it would be unwise to build a major liquefied natural gas exportation facility before more is known about how much natural gas the Levant Basin actually contains. It would take at least five years and cost $6 billion to $8b. to build such a facility, and that is before taking into an account that a location has still not been found for it, he added.

Moreover, if Israel is going to export gas, it has to understand the market to which it is exporting, Butler said. He pointed out that the United States is now self-sufficient, and that the Levant Basin is not ideally placed to supply gas to the Asian market, given the competition from Qatar, Iraq, Saudi Arabia, Indonesia and Australia.

“There is a real risk that the cost of getting gas from here to there will reduce the net margin, and therefore reduce its value to owners and to the State of Israel,” he said.

Turning his attention to the local market, Butler said he agreed with the forecasts of some of his fellow panelists that the majority of Israeli electricity would soon be manufactured from natural gas.

“This is a developed economy. Israel is not a banana republic that has to export its natural resources. I don’t see why Israel could not develop gas grids in major cities to bring it to every business and every home. That is what has worked in most European countries, and there is no physical reason that cannot be done here,” he said.

Energy and Water Minister Uzi Landau, who spoke before the panel discussion, said that continued gas exploration depended on being able to provide an assurance that some of it would be for export. Landau also addressed the topic of electricity production, saying that Israel would be open to selling power to Jordan and Egypt should they wish to buy it.

Landau criticized the Environmental Protection Ministry, saying that it was motivated only by environmental concerns, something that restricts the supply of gas and would likely lead to electricity blackouts.

In response, Environmental Protection Minister Gilad Erdan said he completely rejects the notion that his ministry “exacerbated the shortage of natural gas.”

Rather, the depletion has been caused by the overuse of natural gas on the part of industry, and the Energy and Water Ministry should have been engaging in longer-term preparations to prevent such deficits, a statement from the Environmental Protection Ministry argued.

“The shortage of gas was known in advance and would have happened even without any guidance from us,” Erdan said. “The shortage stems from a long-term planning failure of the [Energy and Water] Ministry. If Minister Landau and his ministry were operating as required, the public could enjoy cheaper electricity and live in a cleaner and healthier environment.”


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