In one of the stories about Chelm, the mythical Jewish village of fools, a treasure is discovered in the village. After endless arguments about how to distribute the money, the village wise men devise a brilliant solution: rebury the treasure in the ground, thereby restoring tranquility to Chelm. A similar solution has been gaining popularity in recent days among prominent Israelis known for their wisdom. In their opinion, leaving the natural gas in the Leviathan reservoir under the sea is better than taking it out, especially if developing Leviathan will make Yitzhak Tshuva and his partners rich.
If natural gas buried under the sea seems to you like a kind of strategic asset or insurance policy, you have a good chance of being regarded as a wise man in Chelm, but reality does not stay in one place. In a world in which revolutionary technological advances are making what is customary today unnecessary, the passage of time is of critical importance.
Everyone calling to leave the gas under the sea should know that the probability that the gas will stay there forever is increasing with that every day that passes. In that case, its value will be zero. We have cut off our nose to spite our face merely in order to do the same to Tshuva. The world is switching to renewable energy - wind, sun, and water. This transition is being delayed because there are no technological solutions at present for efficient storage of electricity, and smart management of an electrical grid is a gigantic challenge. It will take 10, 20, or 30 years, but the revolution will come. Oil, coal, and the rest of the fossil fuels will be marginalized. Up until recently, energy experts believed that natural gas would be a kind of bridge as the main fuel driving power stations until the new energy era dawns. Recent forecasts published in "Globes," however, deny natural gas even this temporary title. "I don't know whether there will be a country in 20 years," a senior Ministry of Finance official once said, and his remark can be rephrased to say that we do not know whether gas will be needed in 20 years.
In any sane (non-Chelm) place in the world, therefore, they will tell you that development of Leviathan is preferable to leaving the gas under the sea. The Ministry of Finance forecasts listed here assume that if the gas is sold at an average price of $5 per mmbtu, the state treasury will receive $55 billion in the coming years. In order to get there, it is necessary to find a buyer for the gas. The developers have searched for potential buyers from India to Tokyo. When they did not find any, they began to search closer to home in the surrounding countries. Thus began the romance with the gas companies in Egypt, which will apparently get us nowhere fast, and not for the first time. What should be done now is to search for buyers for the gas even closer - in our own homes. If the local market is already mostly sold to the Tamar reservoir, creative ways must be found to enlarge that market. Incentives can be given to convert public transportation to gas power, and connecting private homes to the gas transportation network for heating in the winter and cooling in the summer can be promoted. All of these solutions are already being applied in other countries around the world, but their implementation in Israel has been stuck in a bureaucratic maze for years.
A much simpler and more significant measure can be taken - a halt or drastic decrease in the production of electricity from coal. Half of Israel's electricity is still produced from polluting coal imported from Australia, Indonesia, and South Africa. The country derives no benefit from it, other than the excise tax levied on coal. The Ministry of Environmental Protection estimates that 230 people die each year as a result of breathing pollutant particles emitted in the coal burning process. If all the electricity produced with coal were produced with natural gas, consumption of gas in Israel would grow by 5-6 BCM annually - close to the amount in the deal with BG that was supposed to have paid for the development of the Leviathan reservoir. In practice, the proportion of electricity produced from gas has actually been falling and the proportion produced from coal has been rising, due to the recent substantial drop in the price of coal.
The most outrageous failure is taking place at the Orot Rabin power station. The old power stations in Hadera (1-4 units) have been operating for 40 years, and have reached the end of their lifespans. They can be demolished and replaced by modern combined cycle gas operated plant. Such power plants, located on the beach, can produce electricity at lower cost than any other plant current operating in Israel, and can consume 2 BCM a year of gas. How is it possible that such a simple and logical solution is not being employed? The reason, like everything else with Israel Electric Corporation (IEC) (TASE: ELEC.B22), is the stalled reform. IEC wants to build the power stations by itself, and is demanding a commitment from the state that the company will retain ownership of them. The state is willing to accept such a deal only in the framework of a comprehensive reform of IEC that has already been delayed for 20 years. During the discussions, compromise proposals were made, such as incorporation of the new power plants under subsidiaries, with shares in them being floated on the Tel Aviv Stock Exchange (TASE) (or without a controlling interest), but there is no one capable of making a decision.
This imbroglio can be solved if the state invests a little energy, perhaps 10% of the energy wasted on the gas plan without any results. All it takes is leadership, initiative, and a little thinking outside the box. In Chelm, however, it is easier to bury the treasure.
Published by Globes [online], Israel business news - www.globes-online.com - on September 2, 2015
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