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Column One: Oil brings us to a better place
By CAROLINE B. GLICK
13/06/2013
Unlike the situation with Better Place, economic laws of supply and demand work in favor of Israel’s energy solution.
 
By all accounts, Shai Agassi, the founder and original CEO of Better Place, Israel’s bankrupt electric car company, is an extremely charismatic man. His charm had politicians, venture capitalists, celebrities and non-automotive industry reporters slobbering over him. Everyone wanted to get their picture taken with the man who would transform Israel’s auto industry into the first electric powered industry in the world and transform the start-up nation into the transportation hothouse for the world.

Agassi’s vision was simple and easy to understand.

By 2020, half of Israel’s cars would be battery powered electric cars supplied by his company, Better Place. We would replace our internal combustion engines, powered by oil produced by our worst enemies, with batteries produced by Better Place. Better Place would overcome the technological deficits of batteries that are only capable of powering a car for short distances by building battery changing stations throughout the country. Instead of filling up our tanks with gas, we would replace our battery.

And our enemies would go bankrupt.

The only ones not convinced by Agassi’s plans were people who actually understand the car market generally and the Israeli car market in particular.

Automotive industry reporters warned as early as 2008 that Israeli drivers would need incentives to buy into a new technology. Cars in Israel are prohibitively expensive. The government charges 82 percent customs duties on imported cars. If electric cars could be cheap cars, then they had a chance of succeeding.

To help Better Place succeed, the government gave the company a massive discount on import taxes. Better Place, which signed a deal with Renault to produce a battery-charged model of the Fluence family car, paid only 10% import duties for the car.

Instead of passing the savings off on its customers, Better Place cars cost the same amount as regular gasoline powered cars. And that’s not including the cost of the battery or the monthly subscription to Better Place battery charging services.

So there was no economic incentive to buy the car.

Many have chalked the failure of Better Place up to its poor management. And no doubt Agassi’s management skills didn’t hold a candle to his skill as a salesman. The company’s business model was an incoherent study in overreach and hubris.

But the fact remains, the car was too expensive.

And that makes some sense. Building a whole national infrastructure for electric cars is expensive.

The only incentives Better Place gave consumers were ideological. And as it worked out, only 900 people were willing to pay full price to own a car whose actual battery life was between 100 and 120 kilometers, just to reduce their carbon footprint or to screw the Arabs.

To summarize, the government gave Better Place a massive tax break. Investors poured $840 million into the company. The media showered the company in fabulous free PR.

And in four years, it only managed to sell 900 cars.

That tells you something about economics.

The iron rule of supply and demand is foolproof.

If the price is too high, people won’t buy your product. And if the ticket price of being the pioneers in a risky market, of having to go out of your way to get to the battery swap stations, and of swapping your battery three to four times more often than you have to fill up your gas tank is the same as the price of a normal car, then no one will want to be a pioneer. And no one did.

Indeed, according to Channel 2, more than a hundred of the 900 owners of Better Place cars worked for the company. And the majority of the other owners purchased the electric car as a second or third car.

People warn that Better Place’s failure will harm the reputation of Israel’s hi-tech economy.

But these warnings make little sense. Better Place wasn’t a hi-tech firm. It was an electric car company. And it wasn’t selling new technology.

It simply packaged old failed technology in a new way.

What failed with Better Place wasn’t the idea of Israeli hi-tech prowess and ingenuity. What failed – again – was the notion that there is a way to use alternative energy sources – like electricity – to replace the internal combustion engine. And there isn’t. There isn’t because laws of supply and demand govern the economics of the car industry even when Shai Agassi is the one selling alternative economic laws.

One of the attractive aspects of the alternative fuels market is that it allows people who care about security to partner with radical environmentalists who oppose the consumption of oil.

No other issue brings far-right security hawks together with far-left environmentalists. And while most environmentalists are unmoved by the presence of conservative hawks in their coalitions, conservatives are overjoyed at the opportunity to rub shoulders with members of Greenpeace and the Sierra Club. Maybe one of the reasons that many security hawks remain enamored of alternative fuels despite their clear inability to replace oil on an open market is because they are unwilling to abandon their one common cause with the Left.

But the time has come to abandon the environmentalists.

Israel has the means to achieve energy independence and pave the way for the free world to neutralize the economic power of the Islamic world.

Unlike the situation with Better Place, economic laws of supply and demand work in favor of Israel’s energy solution. The only force standing in the way is a coalition of radical environmentalists who oppose all oil consumption because they believe that the greatest threat to the world is global warming. They don’t want cheap oil.

They want oil at $500/barrel. They don’t want clean oil at cheap prices. They want us all to live in crowded cities, become vegetarians and travel around on mass transit or ride bicycles.

Four years ago, Israel discovered that it is sitting on top of a massive amount of oil. South of Jerusalem, in the Shfela Basin beginning around 15 km. from Kiryat Gat, Israel has an estimated 150 billion barrels of oil – or 60% of Saudi Arabia’s reserve capacity. The oil is located in shale rock located 300 meters below ground. It is separated from Israel’s underground aquifer by 200 meters of impermeable rock on either side.

If tapped into, Israel’s domestic oil supply could provide us with energy independence for hundreds of years. At the initial stage, we could produce enough to satisfy entirely the IDF’s fuel requirements – 50,000 barrels a day. And we could refine it at Ashdod without even having to expand our refining capacities. In later stages, we could produce enough oil to satisfy the entire country’s consumption needs of 80 million barrels a year.

A visit with the senior executives of Israel Energy Initiatives is frustrating journey into Israel’s political pathologies. IEI holds the license to develop Israel’s shale oil deposit. CEO Relik Shafir, a retired air force brigadier- general, explains that due to a well-funded campaign of radical environmentalists directed by Greenpeace in Turkey, IEI has entered a “Kafkaesque regulatory universe,” where a pilot project to demonstrate its technology has been held up for four years.

First through petitions to the Supreme Court spearheaded by the far-left, New Israel Fund-supported Adam Teva V’Din environmentalist movement, IEI’s pilot project was delayed for a year. The pilot, which will take three years, involves demonstrating IEI’s technology for oil extraction by extracting 500 barrels from a test area south of Beit Shemesh.

The Supreme Court found in favor of IEI, but required the government to rewrite the law governing oil explorations. Radical environmentalists at the Environmental Protection Ministry coupled with incompetent bureaucrats at the Ministries of Justice, Energy and Interior delayed the project for another three years by delaying the drafting process.

Now the law has passed. And all that stands between IEI and the pilot program is the Jerusalem Planning Board. The board will likely begin deliberations on the plans in the fall.

IEI’s chief scientist, Dr. Harold Vinegar, worked as chief scientist for Royal Dutch Shell. There Vinegar developed the technology for shale oil extraction. To transform the shale rock into liquid crude oil, shale oil needs to be heated to 300 degrees Celsius. Heated at that temperature, in three years, the rocks melt into liquid fuel that is extracted through production wells.

Vinegar developed the means to heat the rocks inside the earth with heaters dropped 300 meters. Due to the shale rock’s isolation from the aquifers, and the fact that 9 meters from the heated area, the rock temperature remains 25 degrees Celsius, IEI’s technologies will have no impact on the environment, either below or above the surface.

The basic rationale of the environmentalists’ campaign against IEI’s pilot is to kill Israel’s ability to develop its oil fields before the public realizes what is involved. Once the pilot is approved, assuming it lives up to IEI’s projections that it will be able to mass produce oil at $40/barrel, public support for the initiative will be so great, and the economic logic of moving forward will be so overwhelming, that the project with be unstoppable.

Unlike Better Place, IEI won’t need a charismatic salesman from Silicon Valley to sell its product.

Today Israel pays $100 per barrel for Brent crude, or NIS 2.2 per liter. Consumers pay NIS 8 per liter at the gas pump, which includes refining and transport costs and taxes. If Israel produced its own fuel, although the government would certainly continue to overtax it, and it would still need to be refined and transported, there can be little doubt that the price for consumers would be significantly lower. And most important, the supply would be guaranteed.

One of the IEI’s minor investors is Australian news mogul Rupert Murdoch. Murdoch is interested in IEI because there are also massive deposits of oil shale in Australia. If IEI’s pilot is successful, Australia will doubtlessly follow Israel’s lead in developing its own energy independence through oil shale development.

Unlike the situation with Better Place, there is no hype surrounding IEI – except the negative hype generated by the radical environmentalists.

For an oil company sitting on the license area covering an estimated 40 billion barrels of oil, IEI’s appearance is shockingly modest. Whereas Better Place wasted tens of millions on glamorous offices and a huge workforce, IEI office suites are as plain as can be. President Effi Eitam, former minister of national infrastructure, works in a tiny, cluttered office and sits behind a nondescript desk on an inexpensive chair. Employees work in cubicles.

IEI has not waged a campaign to counter the environmentalist propaganda because it believes that the facts will speak for themselves. The minute IEI is able to run its pilot, it is convinced that the public will back it. Whether or not this is the proper strategy will be determined in the coming months by the Jerusalem Planning Committee.

In the meantime, due to shale oil fracking, the US has moved from net oil importer to net oil exporter in five years. In the same period, Israel has seen IEI’s pilot delayed year after year as politicians and reporters have followed alternative fuel pied pipers into bankruptcy.

caroline@carolineglick.com
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