Energy relations between Europe and Russia can be described as the golden pipeline. Russia is the largest and most stable supplier of natural gas to Europe, despite the unease of European political leaders. Last year, Russian energy company Gazprom supplied 178 BCM of natural gas to Europe, representing 40% of the continent's total consumption, at the competitive price of $4.5 on average per thermal unit (mmBTU). This power brings Gazprom business ties with many European energy companies, and no change in its status appears to be on the horizon.
Against this background, the visit to Israel of European Union Commissioner for Climate Action and Energy Miguel Arias Cañete is part of a blocking maneuver by the EU against Russian domination. At the press conference in which he participated today together with Israel's Minister of Energy Yuval Steinitz and the energy ministers of Italy, Greece, and Cyprus, a joint declaration was signed concerning a 2,000 kilometer-long gas pipeline from Israel to Italy, 1,300 kilometers of it undersea, which will make it the longest submarine pipeline in the world. At the event at the Dan Hotel in Tel Aviv, the five politicians announced the setting up of a work group to promote construction of the pipeline, which is known as East-Med, by 2025, and to achieve multilateral agreement on the matter between the countries involved. The leaders declared that they were adopting the joint professional document drafted by the energy ministries of the four countries, which assumes that the project is feasible from an engineering point of view and economically worthwhile.
Steinitz said at the event that "Israel is on the map" in energy. "Our unanimous agreement to move forward with the Mediterranean gas pipeline project means that Israel has been accepted not just in the Middle East but also by Europe as a significant player in the international energy economy. That has economic repercussions, and certainly political repercussions."
Talking to "Globes" about his visit to Israel, EU Commissioner Cañete said, "The purpose is to analyze all the challenges in the way of Israel becoming a major player in the future global gas market. The EU is very excited about that, which is why I am here. We see Israel and the countries of the whole region as good partners, because in the future the region is going to become a very important gas market."
The critics say that the numbers don't add up, that the Israeli gas will reach Europe at prices between $7 and $8 per thermal unit, which compares with an average price in Europe last year of $4.6.
"The EU's main concern is security of supply. European policy down the years has focused on diversifying sources of supply and channels of supply. So for us, new gas pipelines such as from Israel are a top priority, and so we are trying to promote projects such as this one.
"The first thing that needs to be understood is that gas is going to continue to be very important for the EU in the future. In 2015, gas consumption in the EU was 430 BCM, and despite the cut in fossil fuels consumption in order to abide by the Paris Agreement, in 2025 consumption will be at least 350 BCM.
"We need to recognize the fact that supply from independent sources in Europe is declining, and so imports are very important. I think that there is an excellent opportunity to import gas to the EU from this region, which is a neighbor to us. We don't need to build extremely long pipelines."
So the EU will subsidize the construction of a pipeline form Israel?
"The EU already supports these projects. We gave half the financing for the technological research for this project (€2 million - N.Y.), and now we have to make progress with researching and planning the project, and we shall continue to finance part of it. This project is defined as a 'joint interest' project by the EU, and so it has political support, and it will be a candidate for retaining this status in the future as well, in order to receive financing for future research.
"It's a very challenging project technologically, and so we must make certain that it's possible. High technology is need here because of the sea depth, and we must also ensure that the project is doable from an economic point of view. So we have to wait for the research to be completed to see what the way forward is for this project. The financing that we shall provide for research and planning of the project will be more than €5 million.
"After we have seen the results of the research, we shall be able to check whether the project meets the criteria of the Connecting Europe Facility program, which is the tool we use in order to finance non-economic projects. In such cases, if all the conditions are met, there can be finance, but it has to be very clear and sharp. One of the criteria that can justify financing is boosting energy security. But we're not there yet. First of all we have to see what the budget for the project is, and whether it will be competitive."
On the basis of conservative assumptions, the cost of the pipeline will be close to $6 billion, and it will be able to supply no more than 15 BCM annually. That is not a large quantity.
"It could be that in the end the pipeline will have a 20 BCM capacity. We have to wait and see the results of the research."
A very reliable exporter
Do you believe that Israel can export gas at a competitive price?
"I'm fairly sure that the EU will be an important gas market. We want diversification of supply, and I'm also fairly sure that Israel will become a very reliable exporter."
Is there a scenario in which the EU subsidizes a pipeline like this one to the tune of billions of euros? That after all is what it will take to make the pipeline economic.
"We will be able to examine all the scenarios only when we have all the numbers. We have to know exactly what will be the costs, the benefits, the financing. And then we have the financing options and other tools. We have the European Fund for Strategic Investments, which we are currently using to finance connections within the EU, and that is a successful financial tool for financing projects like these at low cost. There are other funds that could be appropriate, a range of financial tools, among them loans, and also grants if the legal conditions are suitable."
In the billions of euros?
"For a percentage of the projects. At present, from the initial checks we have carried out, we believe that the project is possible technologically, and that it could also be doable economically."
Published by Globes [online], Israel business news - www.globes-online.com - on April 3, 2017
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