A look at what is happening in Germany is a good opportunity to examine the Israeli miracle with the help of Gina Cohen, an international expert on the issue. Despite the clear conclusion, it is amazing there are still populistic public figures here, like MK Mossi Raz, that insist on denying the facts
If you want to become familiar with the “energy crisis” and why Israel will not become familiar with this term thanks to the abundance of gas that it has – one has to look at what is happening in Europe, especially in Germany, on of the strongest countries in the world from the economic point of view. Then one has to remember all the Bolsheviks, populists and anarchists that put endless sticks in the wheels of the development of the gas market in Israel, until reality and clear thinking took over.
And thus, on the 16th June, the government of Germany called upon its citizens to use gas in a measured fashion. One week later, on the 23rd June, the government already declared it had entered its second level of alert out of 3. If Germany moves over to level 3 of its emergency alert level, then the government will be able to start rationing the supply of gas to factories and households. It sounds imaginary, but it’s the reality.
The war in Ukraine is hardly in the headlines any more, at least not in Israel, but the Russians are using gas as an economy weapon and are reducing the volume of gas supplied – which is what has caused Germany to declare the emergency. Gina Cohen, a global expert in the energy market, especially on natural gas estimates that it will take a long time for them to wean themselves off of their dependence on Russian gas. “The talk is that it could happen in 2024, but it could take longer, she warns.
One has to understand: two-thirds of German gas comes from Russia – a dependence that Germany was not wise enough to diversify away from a prior. This is a bad example, a very bad example of the commixture of politics, war and economics.
“Germany is a good example of the energy crisis that is happening in Germany for a number of reasons”, says Cohen. “First, it is the biggest consumer of natural gas in Europe and it produces very little itself. It consumes about 90 bcm a year and it produces only 5. It is therefore very dependent on the supply of gas from Russia – and about two-thirds of its gas imports comes from Russia with the rest coming from Norway, and Holland. Germany decided a long time ago that all would be fine for it and that it doesn’t need LNG regasification facilities”.
“As one knowns, there are two methods to bring natural gas: by pipeline from point A to point B or as a liquid. If one has gas that comes via a pipeline, then there is more commitment that it will be taken at the other end and there is also a greater degree of security of energy for the buyer, because the seller cannot divert the pipeline to another place. If one has liquefied natural gas, there is a much higher degree of flexibility, for example if there is pressure on supplies and demand, the buyers are willing to pay more if needed, and the gas can be bought at the higher price.”
The Germans thought they didn’t have to do any of this and they are therefore now very dependent on Russia. This is why they have recently announced their level 2 emergency alert, and this happened mostly because the Russian reduced by more than half the supply of gas via the pipeline (Nord Stream 1) that goes directly to Germany – which in the past is what provided them security of energy. At first, the Russians cut the supply by 40% via this line, then 50% and now it has reached 60% reduction. They claimed that this was because of technical reasons and they sent the spare compressor parts to be fixed to Siemens in Canada which refuses to return the parts because of the sanctions imposed on Russia. We really don’t know if the issue is indeed technical problems or more likely other reasons, but in any case, the Russian are not supplying the goods.”
“In addition to this problem, there was also a problem with one of the LNG export facilities in the USA, which resulted in LNG supplies from the US falling by nearly 20% and this will continue probably until the end of this year, until they fix the problem. Insofar as energy is concerned, whether oil or gas, the volume delta is very small and thus even if something relatively minor occurs, such as one LNG facility in the US falling, then the whole global gas market can suffer from a crisis.
If there is a malfunction or the sudden onset of extreme weather conditions, these have an immediate effect on the market and can have a big impact. Thus, Germany, which only 6 months ago said that it was focussing more and more on renewables, that it doesn’t want gas and also doesn’t want nuclear stations for power generation, is now the most eager country that is seeing to get gas from anywhere possible. One of the interesting aspects about Germany is also the issue of gas storage: the volume of gas that can stored in Germany is 23 bcm and this can only supply ¼ of its needs over the year and storage in Europe is currently at an average of 55%, so Germany has problems. Currently, Germany’s overall energy fuel mix – not just for electricity generation is: oil 32%, gas 27%, renewable energies 16%, coal 18% and nuclear 6%.
So what can the German’s nevertheless do?
“They are searching for gas to buy from any place possible. They also considered retracting their decision to shut down their nuclear power stations – they have already shut down 3 a year ago and are about to shut down another 3. But it is too late, because these stations are old, and if they had wanted to continue to operate them, they should have maintained them to an appropriate level in a timely fashion years ago, but did not do this. They also did not buy nuclear fuel needed for the stations – and all this points to the importance of having a long-term energy policy – also in Europe and also for us in Israel, and this is also the message I wanted to give in the Knesset last week, that we need to have a long-term energy policy. Well, you know, the matter is alike a huge aircraft carrier at sea, it cannot turn direction quickly. If one wants to go in one direction and then suddenly we want to change this direction – it just doesn’t work this way, and things cannot move fast.”
“Changes are very slow, and that is why we must not take drastic decisions, but rather move very slowly and with all due care. The Germans decided to shut down their nuclear power stations and then retracted this decision, but it is no longer possible for them to implement this change, so what is left for them to do They have two dramatic things left for them to do out of lack of options. They are increasing their power generation from coal and from the gas point of view they are doing something positive in my view: they are about to lease 4 LNG regasification vessels, because onshore facilities take a long time to establish. But this is only half of the task, because they still need LNG suppliers from whom to buy the liquefied natural gas. Its nice they will have these vessels, but they still need to find gas to buy”.
And of course that costs them a lot
They are paying a lot of money for their gas. A week ago the price fell to below $30 a unit of heat, and this week it already increased back up to $39 per unit of heat. (reminder: in Israel the prices are at $5 or below – E.T). In Germany they are now worried about the possibility that Russian will completely cut off the supply of gas to Europe. I don’t believe this is very likely they will do this, but they can certainly but the percentage of supply even more and to continue using the gas as a weapon.”
“I would like to point out one another matter about Russia: they are earning a lot of money, even more than last year. Also on the export of gas and also on the export of oil and oil products, even after they reduced the volume of gas, because of the significant increase in prices. This is even despite the fact that in order to sell their oil and overcome the sanctions, the Russians are giving large price reductions of even $30-$40 a barrel to buyers in China and India and this year will most likely be a peak year in terms of revenues for them despite sanctions”.
There is no doubt about it: Israel has larger volumes of gas than it can consumer. The export of gas sounds simple, but reality is always much more complicated, and in the past Cohen has explained in detail in a study she carried out on natural gas in the Eastern Mediterranean all the issues regarding gas exports. This requires the cooperation amongst many entities, and of course including the gas suppliers, the state authorities and regulators, the gas transmission entities and also the transit countries, the foreign state entities abroad. Therefore, the complexities and the risks involved in such projects of gas exports are so much bigger than those of characteristic of the projects of only selling gas to Israel.
Israel’s export policies preoccupied the government and the regulations already since 2011, and after a number of committees and decisions, the government decided in January 2019 to approve the decision to preserve 500 bcm for local needs for the next 25 years, and that the surplus volumes, at a more or less similar level, to enable to be exported, conditional on getting gas export permits from the Ministry of Energy.
In June 2021, an inter-ministerial committee published for public comments its updated views on the subject of the Israeli gas market, as well as regarding the matter of gas exports. The committee reached the conclusion that there is a high chance that large volumes of gas that have been discovered offshore Israel will never be used, and that there is a window of opportunity of 20-25 years to monetize the gas. The committee accordingly recommended that the government encourage and promote the export of gas. Nevertheless, as is the norm here, the report didn’t include practical recommendations for implementation.
Israel’s two current export markets are Jordan and Egypt. This needs to be said publicly: Israel is saving Jordan from an energy crisis and is selling the country gas at reasonable prices, even dream-like prices for Jordan, much lower than what it would have had to pay from elsewhere in the world, and this is despite the demonstrations that took place around Jordan because of the agreement. “The export of Israel gas to Jordan saves them, if not they would have had to import LNG at the much higher price of $30-$40”, explains Cohen, with the estimates being that the prices for the export of gas to the Jordanians is only about $7-$8”.
The biggest contract there was signed in 2016 between the Leviathan partners and the Jordanian electricity company to sell a total of 45 bcm of gas over 15 years. The credit rating agencies regard this contract as being strategic for Jordan because the country has no indigenous sources of energy, except for renewable energies, and it would thus be very dependent on the import of relatively expensive LNG.
The second export market is Egypt: in September 2019, agreements were signed between the Leviathan and Tamar partners and the Egyptian Dolphinus company that has since changed its name. The agreements regulate the export of 60 bcm of gas from Leviathan and 25 bcm from Tamar until 2034. The agreement enables to market this gas to the local markets or to export it in the form of LNG. The gas is exported from Israel via the INGL transmission system until the EMG connection point from which it is transmitted via a pipeline to the Egyptian transmission system to one of two targets- end consumers in Egypt or to one of the LNG liquefaction facilities. This is an expensive and rather complex route which also leads to capacity limitations n the volume that can be exported.
“It’s a shame. For years, one has been speaking about export and we have not advanced on another channel/route for exports” says Cohen. “The only route we have is to Egypt and it is limited in its capacity to 7-7.5 bcm a year. Once the offshore Ashdod Ashkelon line will be completed in about a year, this volume can be increased. However, to my knowledge, the bottleneck then moves to Egypt because all the gas routes lead to El Arish and that line between El Arish and Port Said has a capacity of 10 bcm, therefore regardless of what we do here, it all reaches the El Arish point and we will not be able to export more than 10 bcm, This is a nice and large volume, but we can do more”.
“And one has to remember another matter: once Karish is in production – it will start to produce 3 bcm and then will reach 6.5 bcm this year and with Tamar having the capacity to produce 11 bcm and Leviathan 12 bcm a year, this is of course enough for the local market and thus we have to move to the next phase: to arrange for an additional volume of 10 bcm for exports and maybe even 12 because the Leviathan infrastructure has been constructed with the ability to double production.”
I understand that the export infrastructure that is currently being examined is a directly offshore pipeline from Leviathan to one of the Egyptian LNG facilities or the construct of an LNG facility here. And of course, there is the feasibility study being carried out on the EastMed pipeline project which is a planned mostly offshore natural gas pipeline that is due to provide a direct link between the gas reserves in the Eastern Med and the markets in Europe and would enable to transmit up to 20 bcm a year from Israel and Cyprus to Europe”.
One has to also remember that Israel has a big advantage: the operator of the Leviathan and Tamar gas fields, is the major energy company Chevron – a company with expertise, connections, financial backing and skills in the global market. If one wants a player with the ability to construct infrastructure and export options, then undoubtedly, Chevron is such a company.
And what about the export contract signed with the European Union – it is rather theoretical for the time being?
What was signed with the EU is not a contract, but an MOU, this is not a commercial agreement, but an inter-state agreement. Although this is good, because to start with one has to have such an inter-state agreement, it nevertheless does not include prices or volumes, and therefore, yes you are correct, in the meantime, this is not for large volumes”.
I have known Gina Cohen for many years. There is no way more straightforward then her in the natural gas sector. Each time, I want to simplify the very complex energy markets for readers, I turn to her, because all the players in the market hold her in great esteem, and she is a sought after speaker in Israel and the world.
Despite this, last week, MK Mossy Raz, the chairman of the special Knesset Committee on the matter of the Sovereign Wealth Fun, “threw” her out of the committee, after he spoke to her extremely rudely and said to her: “shut your mouth”. Raz’ pretext was very characteristic of left-wing people, who allegedly call themselves liberals and supportive of free speech, until somebody doesn’t draw with their doctrine. At that point, they change their cloak, and cast asunder all “their exalted values” and move to an attitude of predatory shutting up the mouths of others.
Raz explained his ugly behavior towards Cohen in this manner: “a presentation of content that denies the existence and the severity of climate crisis is a dangerous deception…”. Namely, according to Raz’ thinking, someone who believes in the exaggerated inflation of the climate crisis – and there are many such people in Israel and the world – needs to be “thrown out” and his mouth has to be shut up. What is your name, MK Raz? What is your expertise?
I really hope this is the last debate that Raz will chair from today onwards, and that he finds himself out of the next Knesset. There is no room for MKs who do not honor the freedom of opinions. I am also happy to see the fall from grace of all the left-wing organizations, for whom Raz is willing to shut the mouths of people to please them and to receive from them a few nice words.
The way in which this anarchist group, which navigates Haaretz-the-Marker, settling accounts with anyone who does not align with them, with the same religious fervor of the climate crisis, or in the past the religious fervor of opposition to the gas outline, no longer excites anyone. The gas outline worked excellently, for the benefit of the public, as opposed to the whole bunch that had been testifying for itself as though they were working for the benefit of the public. Absolutely not, this bunch works but only for themselves and against the public while demonstrating economic ignorance.