EU gas crisis could net Israel NIS 100b.
Late last month, several hours after Russia announced it was halting supplies of natural gas to Poland and Bulgaria due to their refusal to pay for it in rubles, Gina Cohen, an internationally-renowned natural gas market expert specializing in the Eastern Mediterranean, addressed the European Parliament in Brussels.
According to Cohen, the overall potential for natural gas sales to Europe could be worth as much as NIS 100 billion in profits for Israel. This is a conservative estimate compared with the Adiri II Committee, which concluded that the profits could reach NIS 230b.
Since Russia’s invasion of Ukraine began, Europe has feared the disruption of the Russian gas supplies on which it depends. But this also presents an exceptional opportunity for Israel.
In her speech in Brussels, Cohen presented the potential for Europe contained in gas exports from the Eastern Mediterranean, including Israel, as an alternative to Russian gas. However, taking advantage of this opportunity requires, first and foremost, the continued development of the offshore gas fields in the Eastern Mediterranean and the construction of infrastructures to convey the gas to Europe.
Consumption in the European gas market amounts to about 500 billion cubic meters (BCM) annually, of which Russia supplied 155 BCM in 2021. Out of Russia’s gas supplies to the European Union last year, 120 BCM (77%) was to countries that have sided with Ukraine and expect to be hit by Russian sanctions. Although the EU has set a goal of halting gas procurement from Russia by 2027, Cohen casts doubt on whether such a target can be achieved.
Cohen explains that in the race to reduce reliance on fossil fuels, the Europeans have focused on renewable energy and have not worried too much about the 30-year transition period before finally reaching the target of 0% greenhouse gas emissions.
“The Europeans have been too well meaning, and because of that, have found themselves in an emergency situation of energy insolvency. Now, due to the gas shortage, they have gone back to using polluting coal. The emergency has led them to seek gas with the most reasonable shortterm
available solution being liquefied petroleum gas [LPG]. This the Eastern Mediterranean, including Israel, can provide.”
The US and Qatar have increased LPG exports to Europe but by insufficient amounts, with the Biden administration slow to develop gas fields.
Cohen calls on Israeli leadership to quickly decide about moving forward on the technical problems for conveying gas to Europe, with the aim of allowing the gas production companies to reach long-term agreements with Europe. These plans would justify the development of existing gas fields and continued exploratory drilling to discover new ones.
“[The] Israeli leadership gives the impression that it does not at all understand the strategic importance of its gas resources,” Cohen said. “Finally, we have the chance to talk with the Europeans about something not related to the Palestinian problem. [Former energy minister Yuval] Steinitz managed to get the gas out of the ground but [former Labor Party leader Shelly Yacimovich, backed by some journalists, tried to prevent that. We must realize the potential to promote sales to a needy Europe. This will be over 20 years at least with annual revenues of at least $30 billion for the state.”
Cohen also analyzes the situation for Russia.
“Putin has erred in understanding
the financial abilities of his country, and he also has technology suitable for developing gas fields,” she said. “They have developed liquefaction technologies but they are not effective and don’t really work. The most advanced technology is in the West, and they are refusing to transfer it to the Russians.”
Does Israel have the technology?
“If Israel does shift its position on selling its gas to Europe, it will benefit from American and European technology for liquefaction,” Cohen explained.
As part of her work for the EU, Cohen recommends setting up a liquefaction facility offshore from Israel, which would cost about $5b., and which would be able to liquefy five to seven BCM annually. In her opinion, this would be the fastest and most efficient way in the short term. For the longer term, she proposes laying an underwater gas pipeline to the liquefaction facilities in Egypt.
Why are you not especially optimistic?
“Three years ago, I wrote a report for the Ministry of Energy and warned that if they don’t do anything to encourage exports, then half of the existing gas won’t be sold. And indeed, they haven’t realized the potential. The current minister has made the situation even worse by deciding not to issue any more
exploration licenses. There is a renewed opportunity because of the energy and gas crisis resulting from the war in Europe, and we have to exploit the opportunity.” So what do you recommend? “In that report, I recommended separating the price of exports from the price being marketed in Israel due to taxation matters. I also recommended reducing the tax in order to encourage the companies to increase production and embark on more drilling.”
However, the most important measure, Cohen believes, is to “accept the recommendations of the Adiri II Committee and increase export quotas from Israel and even expand them because there is enough gas for all Israel’s needs.”
This statement is backed up by the Adiri II Committee’s report, which says that according to conservative estimates from the Energy Ministry, Israel’s existing gas reserves total 921 BCM. In addition, the potential for gas in drillings that already have licenses is estimated at a further 500 BCM. The Adir II Report also stated that maximum Israeli gas consumption over the next 25 years would be 481 BCM.
In other words, even if we relate only to the amount of gas in the developed and producing fields, we could almost double exports from today’s 10 BCM annually through pipelines to Egypt and Jordan.
Cohen adds that as well as supplying gas to Egypt and Jordan, Israel could export 10-25 BCM annually to Europe, by expanding drilling and development and allowing conveyance to Europe.
To achieve this, Israel must cooperate with Cyprus, among other actions, in order to develop the Aphrodite-Ishai field. Israeli experts estimate that gas prices will remain high for at least the next two to three years, so Israel must act quickly.
The Israeli government apparently understands all this. Globes has learned that National Infrastructure, Energy and Water Resources Minister Karine Elharrar has agreed with her Egyptian counterpart that all quantities of gas conveyed to Egypt – above and beyond that agreed in sales contracts – will be transported to liquefaction plants, and from there, to Europe.
After the outbreak of the war in Ukraine, EU Commissioner for Energy Kadri Simson asked Elharrar for clarifications about Israel’s ability to export gas to Europe. The two women met at an energy ministers conference in Paris, where Elharrar asked how much gas the EU would commit to procure. Simson stressed that there were options for long-term procurement commitments. The parties agreed to set up joint working groups with the Israeli side led by National Infrastructures, Energy and Water Resources Ministry Director-General Lior Shilat.
In Israel, however, estimates are that it will not be possible to increase exports before production comes on-stream from the Karish-Tanin fields. One of the reasons for this is higher consumption in Israel and the priority given by the ministry to the domestic market.
According to the Adiri II report, in 2012, there were 36 Israeli offshore licenses and four holdings. The expectation was that there would be further offshore exploration and developments. Nevertheless, since then, only three exploration wells have been drilled; two in 2013 and one other in 2019, while dozens of wells have been drilled in Israel’s neighboring countries.
(Globes/TNS)