Tamar gas field.
(photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
Environmental Protection Ministry officials on Thursday urged Israeli gas companies to lower natural gas prices, saying it is critical to ensuring the resource’s attractiveness to Israeli industry.
Such steps are necessary, according to the ministry, because the low oil price worldwide is making natural gas a more expensive option, despite its environmental advantages.
Switching over to natural gas is the most effective way to reduce air pollution, which comes mainly from factories, heavy vehicles such as buses, and the use of coal to generate electricity, Environmental Protection Minister Avi Gabbay stressed at a press conference in Tel Aviv.
“Lower the price – the market will flourish and that will be good for your sales, for your production, and for the cost of living,” he said, addressing the natural gas companies.
As part of the country’s continual transition to natural gas use, ministry director-general Yisrael Dancziger said his office hopes to this year convert trucks, buses and taxis into hybrid vehicles that run on natural gas as well as gasoline. He warned, however, that such a process cannot occur if the price of natural gas does not come down.
“Despite the desire of companies to switch over to natural gas, it has not proven worthwhile for them to do that because of the price,” he said.
While other measures, such as installing filters on trucks, can reduce air pollution, the most effective course is to switch to natural gas.
A massive glut in global oil, fueled by an internal crisis at the OPEC oil cartel; new technology to extract shale oil; and the expectation of more Iranian oil hitting the market following the removal of sanctions, has moved oil prices to their lowest levels in over a decade.
Many analysts foresee prices staying low through 2016, but an eventual rise is expected, barring any massive economic shocks to dampen demand.
A possible agreement among some oil producers to cut production brought prices up to $34 a barrel on Thursday.
Eran Haimovich, CEO of the Upper Nazareth- based Phoenicia Ltd., was given a $250,000 government grant to switch his glass factory over to natural gas power in 2012.
When his company connected to the fuel network, natural gas was a third of the price of petroleum, he told Thursday’s conference.
“Nowadays, it is the more expensive option,” he said, adding that since connecting, the price of a barrel of oil plummeted from $120 to $30.
Haimovich called offshore natural gas “the best thing to happen to Israel in the past 50 years,” but said that the high prices take away any incentive for other companies to convert their factories. All the money going into building natural gas infrastructure and pipelines will be for naught if there are not enough customers to actually use it, he added.
For future gas contracts, a number of new pricing schemes were approved in the country’s natural gas outline – a deal between the government and natural gas firms activated in mid-December, following a year of disputes, negotiations and bureaucratic battles.
The gas framework offers two new contract options. The first obliges the companies to offer prices according to the existing Oil Refineries Ltd. contract, which is currently the cheapest industrial contract in the sector.
According to National Infrastructure, Energy and Water Ministry projections, this would lead to a price of $5.10 per mmBtu (million British thermal units) – linked to the global benchmark Brent oil price, he added.
Meanwhile, electricity producers will pay a gas price based on an average of the three cheapest contracts of today – those of three independent power producers. That gas price will be equivalent to about $4.70 per mmBtu, with linkage to market changes.