ISRAEL: Egypt gas pipeline explosion raises energy concerns

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

Israel’s quest for cleaner energy sources just got muddied, with the explosion in a pipeline supplying natural gas from Egypt. The explosion occured at a measuring station in Arish and damaged the line supplying Jordan. The line supplying Israel was shut down at first as a precaution. This proved wise as it turned out that the fire overheated the pipe and compromised the entire supply line. It will take several days to cool and for the supply to resume.

The Merhav group, the Israeli partner in the EMG consortium that exports Egyptian gas to Israel, said Saturday it could take up to a week. According to news reports, Israel buys about $10 million worth of gas a week from Egypt in many long-term deals. Meanwhile, it’s been reported that Egyptian businessman Hussein Salem, who owns 28% of EMG, has fled to Dubai- with $500 million.

Israel produces about 45% of its electricity from natural gas that comes from two main sources: 60% domestically from a reserve off Israel’s southern shore, and from 40% from Egypt. Israel was hoping to get about 70% of its electricity from gas by the end of the decade, for environmental reasons as well as economic. Its southern field has reserves thought to be enough to last until the end of 2013 but could be depleted a year sooner if Egyptian supply isn’t resumed.

Prime Minister Benjamin Netanyahu held consultations Saturday morning with the ministries of national infrastructures and defense. Israel is prepared for such a situation, Netanyahu said, and has the immediate possibility to switch to alternative energy and gas sources. National infrastructures minister Uzi Landau said that in coming days, the electric company could use gas, coal and even diesel if necessary to run its power plants. In the long run, extra costs could make their way down to the citizens, warn observers.

The Knesset’s economics committee, the parliamentary body that oversees the issue, is scheduled to address related concerns Sunday. Committee chair Carmel Shama Hacohen told media Israel must take these scenarios into consideration, as well as possible terrorist threats to gas fields, exploration and energy facilities too. Security measures have been stepped up around all relevant facilities, now more clearly than ever a matter of strategic importance.

Israel has large gas sources of its own — potentially, at least.

The recently discovered gas fields of Tamar and Leviathan have caused great excitement. The Leviathan field is earmarked for export, although geopolitics could present a challenge. Unlike oil — which once produced and barreled can be sold anywhere for the same price — the key to profitability for gas is distance. The shorter the distance between supplier and client, the more profitable the sale and the higher the yield for every cubic meter, according to Shmuel Even, senior research fellow at the Institute for National Security Studies in Tel-Aviv.

But the quickest, cost-efficient route to export to Europe, Even said, would be through Turkey, which sounded wonderful two years ago but looks doubtful now with see-sawing relations. Greece is an alternative but would be more expensive. Another even costlier option is liquefying the gas for transport by tankers.

Tamar, closer and smaller, is slated for local consumption and is hoped will meet Israel’s domestic gas needs for the next 20 years or more. Production is hoped to begin by 2014. If delayed, and the southern field runs out, the plan was to bridge the gap with Egyptian gas — conveniently close and cheap and diplomatically prudent too, at least until now.

Recently, production at Tamar was at risk of delay after Israel dramatically increased the government share of gas and oil revenues, causing the companies (that include Texas-based Nobel Energy) financial concerns. Some warned that government decision-making in the development of Israeli sources would leave the country more heavily reliant on Egypt. Following the Tel-Aviv Stock Exchange this week for the impact of upheaval in Egypt could be interesting.

A combination of economic, geopolitical, diplomatic and strategic matters, a country’s energy economy is a mastery of risk management.

Israel tries not to keep its eggs in one basket, diversifying energy sources with oil, coal and gas originating in different geopolitical regions. Besides offering cleaner, cheaper energy and chances of becoming a player in the gas export scene, the recently discovered gas fields offer a higher degree of energy independence and with it a better geo-political financial standing. Generally speaking, Israel spreads its energy needs between a number of sources to avoid single-source dependence and has managed its energy risks quite wisely, Even said.

But now it might have to get smarter.

— Batsheva Sobelman in Jerusalem.

Top: What happens to Israel if Egypt shuts down its oil pipeline? (asked and answered before the explosion). From EnergyNowNews, via Youtube.