Hadera power station conversion to gas dropped

Hadera power station
Hadera power station

Consumption of natural gas in Israel is less than the forecasts.

As revealed by "Globes" several days ago, the abandonment of the conversion of the Hadera power station from coal to natural gas is expected to be a severe blow to the Leviathan, Karish, and Tanin gas reservoirs, which are liable to be left without a domestic market. The conversion of coal units 1-4 in Hadera has apparently been dropped, with Israel Electric Corporation (IEC) (TASE: ELEC.B22) considering other options for reducing pollutant emissions from the plant. The alternative favored by IEC executives is using coal, while installing scrubbers to cut pollution by 90%.

For years, IEC has focused on conversion of power stations to natural gas. These stations were expected to consume 1.5-2 BCM of gas from the Leviathan reservoir annually. For the sake of comparison, the entire industrial sector consumed 2 BCM in 2014, and private power stations Dorad and OPC jointly consumed 1.2 BCM.

Did IEC take into consideration the fact that conversion of coal plants to gas is being abandoned at a time when only 25% of its gas contract with the partners in the Tamar reservoir is being utilized? IEC claims that the answer is no, but 1.5-2 BCM is a significant amount of gas for IEC, which consumed 4.3 BCM in 2014. The entry of private electricity producers into the market, who have taken a significant market share away from IEC, combined with the cancelation of coal-to-gas conversion, is likely to explain why IEC's gas option is being only partly utilized.

Conversion of production units to natural gas was taken into account in the natural gas demand forecasts by the Tzemach Committee, an inter-ministerial committee for examining government policy in the natural gas sector.

The Committee assumed that the units would be converted to gas as early as 2016, and that the Israeli economy would consume 8.6 BCM in 2014, 13.3 BCM in 2020, and 17 BCM in 2025. The Israel economy, however, consumed only 7.57 BCM in 2014, and a revised forecast by the Ministry of National Infrastructure, Energy, and Water Resources predicted consumption of 8.57 BCM in 2015, not 9.7 BCM, as estimated by the Committee.

In addition to the failure to convert coal power stations to gas, another reason why natural gas consumption is lower than predicted is lower than expected consumption of electricity (produced mainly by gas). In its most recent report, IEC predicted that peak demand would rise by an annual average of 2.7-3% in 2015-2020, compared with a 3.8% increase in its earlier forecast. Demand for electricity, however, did not rise at all in 2013-2014.

To the relatively low demand for electricity should be added the slow pace of connecting industrial enterprises to the natural gas network, slow progress in conversion of vehicles to natural gas propulsion, and uncertainty about the construction of the ammonia plant in southern Israel. The Tzemach Committee's demand scenario assumed that an ammonia plant would be built, and would consume 0.7 BCM of gas annually. No such tender has been published yet, and there is uncertainty about its economic viability.

While the Tzemach Committee estimated that the Israeli economy would consume 501 BCM of gas by 2040, gas sector sources now predict that consumption will reach only 460 BCM by that year.

What Leviathan will be left with

Now that conversion to gas has been taken off the agenda, Leviathan, Karish, and Tanin have no one in the domestic economy to supply gas to. 99% of the natural gas consumed by the Israeli economy in 2014 came from the Tamar reservoir (1% was liquefied natural gas - LNG), and Tamar is expected to provide the bulk of the gas consumed over the coming decade. Furthermore, Nobel Energy is expected to complete its project of installing compressors at the Tamar reservoir in the coming months, which will increase gas production there by 20%. Maximum hourly capacity at Tamar is projected to rise from 1.33 million MCM an hour to 1.47 MCM as early as this July (or from 48 billion British thermal units - BTU - an hour to 53 billion BTU). The increased capacity at Tamar will reduce the amount of gas for which the other reservoirs can compete even further, to less than 2 BCM in 2020 and less than 5 BCM in 2025.

IEC stated, "In view of the dramatic change and instability in the gas sector, and in coordination with the Ministry of National Infrastructure, Energy, and Water Resources, the company is considering alternatives. The Ministry, which determines the development plans for the electricity industry in Israel, has the authority to make these decisions."

The Ministry of National Infrastructure, Energy, and Water Resources stated, "The supply of natural gas from Leviathan does not rely on a supply of gas to the Orot Rabin power station. Development of Leviathan relies on a supply of natural gas to holders of licenses for electricity, distribution licenses, industrial consumers, transportation and other uses, and of course exports. In addition, no other decision has been made about the plant, so that conversion of the plants has not been ruled out."

Published by Globes [online], Israel business news - www.globes-online.com - on May 6, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Hadera power station
Hadera power station
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