"Neither I nor anyone else sitting here knows for certain what the economy's needs will be in 2040. It's all estimates and probabilities. We've converged on the common denominator, which is also the lowest figure for exports. The figure is 300-350 BCM," said Ministry of Energy Resources director general Shaul Tzemach, according to the full transcript of the Tzemach Committee on natural gas exports, which was published online on Tuesday, at the order of Minister Energy and Water Resources Silvan Shalom. Shortly afterwards, there was an embarrassing incident when it was discovered that it the censored text, which related to security issues, foreign relations, and speakers' privacy, could be easily read.
After readers succeeded in reading the censored text, the files were taken offline, and later uploaded again in a more secure way..
The transcripts reveal the committee members' different approaches toward the quantity of gas which could be exported. The Ministry of Finance and the National Economic Council that amount of gas for export should not be less than 400 billion cubic meters (BCM). The basic calculation that the Tzemach Committee used for its gas export recommendations was the minimum amount of gas needed for building export infrastructures. The committee assumed a $10 billion liquefied natural gas (LNG) plant with two trains (liquefaction lines). A simple calculation by committee member National Economic Council chairman Eugene Kandel showed that 360 BCM of natural gas was needed to justify the cost of such a plant.
"We're arguing about nonsense. For an oil major, you need to export 350-400 BCM, more or less, at a minimum. This means that there are no exports, and all the other questions are utterly irrelevant," said Kandel.
The Ministry of Finance's representative, Shaul Meridor insisted on increasing this figure to 400 BCM as a safety margin. Commenting on keeping a 30-year reserve of gas for domestic consumption, he said, "In economics, I don’t buy a product today that I'll use in 30 years. What, am I crazy? Do I know what will be in 30 years? I don’t know if there will be a country. 15-20 years is more than enough."
Other committee members, led by Deputy Attorney General Avi Licht and Ministry of Energy legal counsel Adv. Drora Lifshitz, opposed Meridor, saying that the safety margin should be in favor of the gas kept for the domestic market. "What is the expert basis for the understanding that the necessary minimum is 300 or 250 BCM, compared with 200 BCM? Who told us this? What if tomorrow Noble Energy Inc. (NYSE: NBL) tells us that 300 BCM is very nice, but we think that the minimum should be 500 BCM? What then?" said Licht.
Ministry of Foreign Affairs deputy director general Irit Ben-Abba warned that the Ministry of Finance and National Economic Council's approach would be negatively seen by the public as preferring export interests over the interest of securing domestic consumption.
"No one says that there won't be exports," said Ministry of Environmental Protection director general Alona Sheffer-Karo. "The question question is only what you keep, with what you begin, what the economy needs or what [Delek Group Ltd. (TASE: DLEKG) controlling shareholder Yitzhak] Tshuva needs."
In the end, the Tzemach Committee recommended increasing the quantity of gas for the domestic market from 450 BCM in its interim report to 500 BCM in the final report. At the same time, it recommended increasing the quantity of gas for export from 400 BCM to 450 BCM. The committee assumed that Israel would have 950 BCM in natural gas reserves, even though Israel had just 800 BCM in reserves during the discussions. It assumed that there is a more than 90% probability of gas discoveries to make up the 150 BCM difference in its calculations.
In addition to the question of exports, the Tzemach Committee argued over the location of the LNG plant. The Prime Minister's Office observer, Gabi Golan led the argument in favor of building the plant in Cyprus, which the National Security Council representative, Avriel Bar-Yosef, strongly opposed. Golan argued that Israel has no land for such a plant, especially along the coast, and with the kilometer-plus safety margin from adjacent communities.
Another issue over which the Tzemach Committee wrangled fiercely at its last meeting was the government's role in building pipelines from the offshore production platforms to shore. Budget Director Gal Hershkowitz faced off against Tzemach; Hershkowitz opposed government financing, while Tzemach favored it.
The Tzemach Committee estimates that Israel's natural gas consumption will grow from 6.5 BCM in 2011 to 22.6 BCM in 2040. It estimates that, in 2011, 5.6 BCM of gas will be used to generate electricity and 0.9 BCM will be used by industry. In 2040, 13.2 BCM of gas will be used to generate electricity, 5.4 BCM will be used by industry, and 4 BCM will be used for transportation. The committee estimates total gas consumption in 2011-40 at 417 BCM, of which 254 BCM is for the generation of electricity, and the rest is for industry and transportation.
Israel's proven gas reserves are Leviathan, with 540 BCM; Tamar - 242 BCM; Dalit - 7.7 BCM; Tanin - 2.4 BCM; and Dolphin - 2.3 BCM - for a total of 735.4 BCM. Probable reserves are Karish, with 50 BCM, and Neta and Roy, with 50-100 BCM.
Published by Globes [online], Israel business news - www.globes-online.com - on June 6, 2013
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