Tamar and Leviathan.09.04.13

Tamar and Leviathan 09.04.13

by

Howard Adelman

Renewable Energy

Israel was once a significant leader in the production and use of alternative energies, particularly solar energy. Just see the ubiquitous solar powered water heaters on the roofs of Israeli apartment buildings. The first prototype rooftop solar water heater was developed by Levi Yissar who launched the NerYah Company in 1953. However, only with the energy crisis of the 1970s and the passage of a law by the Knesset mandating solar thermal systems did solar energy become integral parts of 85% of Israeli households. 3% of Israeli energy consumption once came from renewable energy. Israel became the world leader in the use of solar energy on a per capita basis. At the end of 2012, the Eilat-Eilot Renewable Energy Conference featured Israeli-developed (as well as other country sources) renewable energy technologies.

However, on the outskirts of Kibbutz Ma’aleh Gilboa stands one of the few wind turbines in Israel. It has been there since 1996. Aside from a few isolated periods of activity, the turbine has generally been inactive. There is another environmental factor mitigating against the use of wind energy in Israel. Israel is the flight path for a billion bird flights migrating from Europe to Africa and back again. Unfortunately, unlike planes, windmills cannot fly around those flocks. An Israeli Zoologist at Tel Aviv University, Yossi Leshem, invented a system to track migrating birds resulting in a 76 percent drop in collisions as both military and civilian aircraft, with a two hour advanced warning, re-plan their flight paths to avoid the flocks.

Nevertheless, Israel is committed to developing renewable energy. Much to the surprise of the Israeli cabinet, President Shimon Peres pledged that Israel would reduce its greenhouse gas emissions by 20 percent by 2020 at the UN Conference on Climate Change in Copenhagen in December 2009. That commitment was retroactively endorsed by the Environmental Protection Ministry. An emissions reduction plan was developed. By 2014 Israel planned to produce 5 percent of its electricity from renewable energy and 10% by 2020. By the end of 2012, less that 1/2 percent of energy needs was in fact produced by renewable sources. The target remains as illusive as Middle East. The real developments in renewable energy have been in technological innovation. For example, Power-Mod solar tents have been developed for victims of war and natural disasters.

Oil

Significant parts of the oil industry that had been state owned have been privatized since 1988 – Paz Oil, Naptha Israel Petroleum, the refineries at Ashdod and Haifa. I will deal with the significance of that privatization in my blog on Tycoons and Privatization. Petroleum & Energy Infrastructures, a state monopoly in the energy field, imports, exports, stores, as well as transports and supplies petroleum products through its wholly owned subsidiary, Oil Products Pipeline (OPP).

The big story, however, is the immanent end of Israel’s dependence on external sources for fossil fuels belying Israeli Golda Meir’s famous crack that Moses led the children of Israel for forty years wandering the desert to search for the only place in the Middle East without oil. Israel used to rely on expensive sources through long-term contracts – Mexico, Norway and the UK (oil), Australia, Columbia and South Africa (coal). This has radically changed. Though most people now know about Israel’s huge offshore gas fields (the Tamar field came on stream at the end of March), many will be surprised to learn that Israel has the 3rd largest deposit of oil shale in the world covering 245 square kilometres in the Valley of Elah in the Shfela Basin in Israeli’s Adullam region near Beit Shemesh 1000 ft. below ground where a chalk layer 600 feet thick provides an impermeable barrier between the oil shale and the water aquifier.

According to Dr. Yuval Bartov, chief geologist for Israel Energy Initiatives (IEI), Prof. Carol Parish, of the Chemistry Department, University of Richmond in Virginia (17 December 2012) and Dr. Scott Nguyen, 250 billion barrels is a very prudent figure for the find. (http://www.newenglishreview.org/custpage.cfm/frm/99429/sec…/99429) By way of comparison, Saudi Arabia has 260 billion barrels in proven reserves. Further, Israel is a technological leader in the means of accessing oil from shale and has devised a technology that will actually produce water instead of using it up to access the oil. On 24 December 2012, the Israel Supreme Court denied a petition to prevent the start of a pilot oil shale extraction project by Israel Energy Initiatives (IEI). The first drop of oil from shale is expected this year and the test phase for production is slated to begin in 2014. By 2020, IEI expects to produce 50,000 barrels per day.

Electricity

The Israel Electric Corporation (IEC), a state owned firm (99.85%), operates generating stations and sub-stations as well as transmission and distribution networks and is very similar to Ontario Hydro. Israel is in the process of radically transforming its electricity production from coal to gas fired units. By the end of 2010, 40% of electrical production came from gas-fuelled power stations. By 2020, plans call for 80%. Further, Israel is planning to export electricity to Europe through an underwater cable via Cyprus and Greece to link up to the European electrical grid. As in other areas of energy, Israelis are leaders in technological innovation such as smart energy management, the use of smart grids to manage electrical usage by electrical companies. Bar Ilan scientists have developed and are now producing nano-scale superconductors to facilitate faster and more powerful electronic devices.

Gas

In 2009, Israeli imports of energy products amounted to over 5% of its GDP per year when enormous reserves of off-shore gas were discovered. Because of environmental interests, costs, resource diversification and a modest discovery of a 33 BCM small natural offshore gas field off Ashkelon, over the previous decade gas usage went from virtually nothing to 4.2 billion cubic metres (BCM) per year by 2009 by means of liquefied natural gas (LNG), the newly built Arish-Ashkelon pipeline from Egypt and the Ashkelon offshore field. The Israel Electric Corporation had already been charged with developing gas-driven power plants, creating a natural gas distribution grid and an LNG import terminal so the huge gas discovery seemed propitious since so much of the infrastructure was already in place. Within five years, use was expected to double that of 2009 to 8.1 billion cubic metres (BCM) by 2014.

Tamar, the offshore field 90 km. west of Haifa that began production at the end of last month, has proven reserves of 188 BCM and an anticipated 10 trillion cubic feet, came on stream in 2013. Four other fields are due to be developed over the next few years: Dalit (700BCM); Leviathan 18 trillion cubic feet; Dolphin (81.3 BCM); Tanin (1.2-1.3 trillion cubic feet). Tamar will supply Israeli needs for the next two decades while supplies from Leviathan will be exported. Even if use quadruples over the next two decades, Israel has enough gas reserves to last two centuries while also engaging in the export of gas.

The Shaul Tzemach Committee released a final report in August of 2012 which recommended placing no reserves on exports from sources with only 25BGM or less, permitting 75% of reserves between between 25-100 BCMs, 60% of reserves between 100-200 BCMs and 50% of reserves greater than 200 BCMs.

Self-sufficiency is a security issue as well since blowing up the Arish-Ashkelon pipeline a dozen times disrupted fossil fuel gas supplies to Israel. This supply source was subsequently suspended. Israel is now assured of security in both supply and infrastructure. Israel has a major initiative to expand its energy port facilities with additional sea-to-shore inlets, natural gas intake, the construction of a LNG plant and creating more and better handling facilities, expand its storage facilities by constructing strategic reservoirs and storage units, connecting the offshore reserves to the national distribution system and increasing the capacity, reach and security of that internal distribution system that will in turn facilitate the further development of industry.

Last year, the Israeli government decided to follow Alberta’s lead and set up a sovereign wealth fund with royalties to invest in education and defence as well as set up a capital fund with domestic and overseas investments.

Infrastructure

Massive infrastructure investment for pipelines, liquified natural gas plants and new oil exporting outlets are underway on both the Mediterranean and Red Sea, the latter for oil and gas exports to India and China. In addition to getting rid of the need to use Israeli shekels to pay for imported energy, in addition to a large capital inflow of investment for oil shale, gas and infrastructure development, in addition to the savings in foreign currency as Israel dispenses with its reliance on foreign sources of energy and shifts to self-reliance, in addition to large increases in job opportunities at well paid positions, the coal-fired electricity plants will be phased out much sooner and replaced by clean-burning gas fossil fuel.

As well, Israel will for the first time have energy security. As a downside, Israel will not likely be developing its renewable energy at nearly the rates planned. On the other hand, the large savings in subsidies will also benefit the economy since currently a kilowatt of gas-produced electricity costs 20 agorot (about 5 cents) versus 55 agorot for solar-produced energy without taking into account the indirect subsidies for gas production. Add to these savings the increase in investment and the offsets of energy imports, GDP will be boosted and the economy will also expand because of spillover effects from the demand for domestically-manufactured equipment and increased high-wage employment. The budget deficit will be eliminated and there will be a positive balance of payments assured well beyond its current balance surpluses from its value-added economy as exported gas is expected to bring in $3billion in 2017.

International Disputes

The gas and oil deposits offshore have created inter-state disputes. Though Israel has settled with Cyprus, the disputes with Turkey and Lebanon are ongoing with the Lebanese dispute the most serious. The latter is akin to the Beaufort Sea dispute between Canada and the U.S. An international law of the sea ruling on that dispute would predict the outcome of the Israeli-Lebanon dispute. The U.S. claims a border equidistant from the land border while Canada claims that the maritime border should simply be an extension of the land border. In parallel, Israel’s position is the same the American one while Lebanon takes the Canadian position. Precedent seems to favour an equidistant ruling.

There is one possible side effect on the peace front. As Israel’s need to protect its fossil fuel sources grow, as well as the export market that will be necessary to make the exploitation of those fields economically viable, peace with the Palestinians may become more imperative.

Tamar and Leviathan.09.04.13.doc

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