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In Europe, prices for natural gas and electricity have skyrocketed, and the continent faces the threat of blackouts this winter. China is already suffering from blackouts amid rising energy consumption and a shortage of coal. The government has asked factories to pay whatever it takes to buy imported liquefied natural gas and run their production lines. In the United States, the price of natural gas hit its highest level in 13 years this week.
In Israel, meanwhile, energy is someone else’s crisis: natural gas supplies far exceed demand, and more gas is expected to come on stream next year. Gas and electricity prices are falling. There is no prospect of power outages anytime soon or price increases over the next two years, analysts say.
Israeli natural gas prices, which have long been higher than in much of the world, now stand at $ 4-5 per million British thermal units – a fraction of European spot prices.
The Israeli gas price compares with the New York Mercantile Exchange price of $ 6.32 per MMBTU on Tuesday. In Europe, comparable prices have tripled in the past year, with most of the rise occurring in recent weeks, currently standing at over $ 30. For liquefied natural gas in Asia, the prices are around $ 35.
Two months ago, the Israel Electric Corporation secured a 25% price cut from its suppliers – the companies that own and operate Israel’s Tamar natural gas field. Israeli consumers haven’t felt the direct impact of falling natural gas prices, but they will, starting next year, after regulators set new, lower electricity prices.
China’s energy shortage is due to a severe imbalance between supply and demand: industrial production booming as the global economy recovers from the impact of the COVID pandemic, at a time when the production of coal it needs to power power plants fails to keep pace with the needs and the arid climate of the south, hydropower has crippled.
In turn, Asia’s growing demand for liquefied natural gas imported from the United States has resulted in increased supply in America and higher prices.
Europe, meanwhile, is suffering a perfect storm: a cold winter of 2020-21 caused natural gas stocks to plummet, just as new supplies delivered by pipeline from Russia and Norway were disrupted. Imported liquefied natural gas could have bridged the gap, except that energy-hungry Asia competes aggressively for supply. The same is true for coal, the world price of which has skyrocketed amid Chinese demand.
Even the weather did not cooperate. Europe gets about a tenth of its energy from wind – in Germany and Britain twice as much – but winds have been unusually calm in recent months and on some days have generated only a tiny fraction of installed capacity. Norwegian hydropower plants have suffered the same type of water scarcity as China.
Where European utilities have been allowed to raise prices, higher gas and coal prices have led to higher electricity tariffs. As winter approaches and energy demand for home heating increases, Europe could face power outages due to fuel shortages.
How did Israel become an island of energetic serenity in the midst of a global crisis?
The short answer is a combination of the large natural gas reserves off Israel’s Mediterranean coast – which have turned the country into energy self-sufficiency – and the natural gas framework agreement the government has reached with the energy industry in 2015, plus the country’s late transition to renewable energy sources.
Modest renewable energy target
Leviathan and Tamar, Israel’s two major natural gas fields, have enough reserves to meet domestic needs and export the rest. Even more natural gas will come on stream next summer when the Karish field begins production. As a result, gas producers have been forced to lower prices in order to win long-term contracts with their customers – electric utilities and large industrial users.
Amit Mor, CEO of consultancy firm Eco-Energy Financial & Strategic Consulting and senior lecturer at Reichman University in Herzliya, attributes much of this to the gas executive, which was widely seen as a clearance sale at the industry when it was signed. Among other things, the executive brought Greek company Energean to Israel to develop the Karish field and bring prices down, much like Golan Telecom did for cell phones a decade ago.
“The low gas prices that have prevailed in Israel, along with price stability and increased supply, demonstrate the success of the natural gas framework achieved in 2015,” Mor said.
Israel is also less dependent on solar and wind power than Europe. Last year, only 7% of local energy production came from alternative sources, mainly solar, and Israel’s future targets are modest compared to those of Europe: the government aims for only 30% of all energy will come from renewables by the end of the decade. Europe is aiming for 40 percent.
But as Europe has discovered, renewables are not reliable sources of energy. Mor says that meeting the targets will require as much emphasis on storage technology, such as lithium batteries, as on increasing production capacity, to ensure sufficient back-up power.
Nevertheless, despite its gas windfall, Israel is not entirely immune to global developments.
Although natural gas currently supplies the vast majority of power generation, coal still accounts for 20% and coal prices are rising. The upshot is that when the Israel Electric Utilities Authority meets in December to set new tariffs, it will have to balance the savings from falling gas prices with the higher price of coal, notes. Mor.
More importantly, from Israel’s point of view, higher energy costs in Europe and China are likely to reach Israel “in the form of higher costs for imports and perhaps more global economic growth. slow, ”said Gal Luft, co-director of the Washington-based agency. Institute for Global Security Analysis. “It will almost certainly be felt in our pockets, although I don’t know to what extent.”
A bad wind
Meanwhile, however, Israel is benefiting to a small extent from rising global energy prices. The prices of natural gas exported by Israel to Egypt and Jordan are also fixed by long-term contracts. But unlike domestic contracts whose prices are tied to US inflation or local electricity rates, its export deals are tied to the price of Brent crude oil, the price of which has risen sharply.
Mor estimates that Egypt and Jordan are now paying between $ 5.50 and $ 6 per MMBTU for Israeli natural gas.
The global energy crisis could also benefit Israel in another way: by paving the way for the development of the Eastern Mediterranean pipeline. Israel, Greece and Cyprus are all keen to move forward with the project, which would supply Israeli and Cypriot natural gas to Greece for shipment to Europe. But the pipeline’s $ 7 billion price, technical challenges and government policies discouraging fossil fuels have dissuaded European buyers from signing long-term commitments to purchase gas through the proposed pipeline. Without customers, funding for the construction of the pipeline has failed.
But European officials and companies can now revisit the pipeline, Mor predicts.
“Europe’s need to secure its natural gas resources over the next few decades increases the likelihood of the Eastern Mediterranean. pipeline materializing, ”he said. If so, it would lead to a huge increase in Israel’s natural gas export potential and the development of more gas reservoirs.
Luft, on the other hand, remains skeptical of the pipeline, saying that even if Europe wants to diversify its energy imports, it can get natural gas cheaply from the Caspian Sea and the United States, or via the liquefied natural gas, which prevents the prospects of its financing.
“No one will fund it,” he says. “It’s a great story, but it didn’t impress the bankers. I don’t think the situation in Europe will trigger a situation where they say “let’s turn to Israel”. Ultimately, bankers have to push the button.
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