In Europe, the price of natural gas and electricity has soared, and the Continent faces the threat of blackouts this winter. China is already suffering blackouts amid surging energy use and a coal shortage. The government has told factories to pay whatever it takes to buy imported liquefied natural gas and keep their production lines running. In the United States, the price of natural gas this week rose to its highest in 13 years.
In Israel, meanwhile, energy is someone else’s crisis: Natural gas supplies far exceed demand, and more gas is due to come on stream next year. Prices for gas and electric power are falling. There’s no prospect of blackouts anytime soon or for prices to rise in the next two years, analysts say.
Israeli natural gas prices, which for a long time have been higher than much of the world, today stand at $4-$5 per million British thermal units – a fraction of European spot prices.
The Israeli price for gas compares with the New York Mercantile Exchange price of $6.32 per MMBTU on Tuesday. In Europe, comparable prices have risen threefold over the last year, with most of the rise occurring in the last few weeks, currently standing at more than $30. For liquefied natural gas in Asia, prices are about $35.
Two months ago, the Israel Electric Corporation won a 25 percent 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 the lower natural gas prices, but they will, starting next year, after regulators set new and lower rates for electric power.
China’s energy shortage is due to a severe demand-supply imbalance: surging industrial output as the world economy recovers from the impact of the COVID pandemic, at a time when output of the coal it needs to fire electric-power plants is failing to keep up with needs and arid weather in the south has crimped hydropower.
In turn, rising demand from Asia for imported liquefied natural gas from the U.S. has caused supplies in America to grow and prices to rise.
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Europe, meanwhile, is suffering a perfect storm: A cold 2020-21 winter caused inventories of natural gas to fall, just as new supplies delivered by pipeline from Russia and Norway were disrupted. Imported liquefied natural gas could have filled the gap, except that energy-hungry Asia is aggressively competing for supplies. The same goes for coal, whose global price has soared amid Chinese demand.
Even the weather hasn’t been cooperating. Europe gets about a tenth of its energy from wind – in Germany and Britain, twice that – but winds have been unusually calm in recent months, and on some days generated just a tiny fraction of the installed capacity. Norwegian hydropower plants have suffered the same kind of water shortage as China.
Where European utilities have been allowed to raise prices, higher gas and coal prices have led to higher electricity rates. As winter approaches and energy demand rises for home heating, Europe could face blackouts due to fuel shortages.
How did Israel emerge as an island of energy serenity in the midst of a global crisis?
The answer in short is a combination of the big natural gas reserves off of Israel’s Mediterranean coast – which have turned the country into an energy autarky – and the much-loathed natural gas framework agreement the government reached with the energy industry in 2015, plus the country’s lagging transition to renewable energy sources.
Modest renewables target
Leviathan and Tamar, Israel’s two big natural gas fields, have enough reserves to meet domestic needs and export the rest. Even more natural gas will be coming online next summer when the Karish field begins production. As a result, gas producers have been forced to cut prices in order to win long-term contracts from their customers – the electric utilities and big industrial users.
Amit Mor, CEO of the consulting firm Eco-Energy Financial & Strategic Consulting and a senior lecturer at Herzliya’s Reichman University, credits much of this to the gas framework, which was widely regarded as a sellout to the industry when it was signed. Among other things, the framework brought the Greek company Energean to Israel to develop the Karish field and push prices lower, much like Golan Telecom did for cellular telephony a decade ago.
“The low gas prices that have prevailed in Israel, and the price stability and increased supply, demonstrates the success of the natural gas framework reached in 2015,” Mor says.
Israel is also less dependent on solar and wind energy than Europe. Only 7 percent of local energy production last year came from alternative sources, mainly solar, and Israel’s future targets are modest compared to Europe’s: The government is aiming for just 30 percent of all energy to come from renewables by the end of the decade. Europe is targeting 40 percent.
But as Europe has discovered, renewables aren’t reliable energy sources. Mor says that in reaching the targets, as much emphasis will have to be put on storage technology, such as lithium batteries, as on increasing generating capacity, in order to ensure sufficient backup power.
Nevertheless, despite its gas bonanza, Israel isn’t entirely shielded from global developments.
Although natural gas currently provides the great majority of electric-power generation, coal still accounts for 20 percent – and coal prices are rising. The result is that when Israel’s Public Utility Authority for Electricity meets in December to set new rates, it will have to balance the savings from lower gas prices with the higher price of coal, Mor notes.
More critically, 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 slower global economic growth,” says Gal Luft, co-director of the Washington-based Institute for the Analysis of Global Security. “It will almost certainly be felt in our pockets, though I don’t know to what extent.”
An ill wind
Meanwhile, though, Israel is benefiting in a small way from higher global energy prices. Prices for the natural gas Israel exports to Egypt and Jordan are also set by long-term contracts. But unlike domestic contracts whose prices are linked to U.S. inflation or local electricity rates, its export agreements are linked to the price of Brent crude oil, whose price has been rising sharply.
Mor estimates that Egypt and Jordan are today paying between $5.50 and $6 per MMBTU for Israeli natural gas.
The global energy crisis might also benefit Israel in another way: by clearing the way for the East Mediterranean Pipeline to be developed. Israel, Greece and Cyprus are all keen to move ahead with the project, which would deliver Israeli and Cypriot natural gas to Greece for shipment onward to Europe. But the pipeline’s $7-billion price tag, technical challenges and government policies discouraging fossil fuels have deterred European buyers from signing onto long-term commitments to buy the gas via the proposed pipeline. Without customers, financing construction of the pipeline has been a nonstarter.
But European officials and businesses may now give the pipeline a second look, Mor predicts.
“Europe’s need to secure natural gas resources in the next decades increases the likelihood of the East Med. pipeline materializing,” he says. If so, that would bring a huge increase in Israel’s natural gas export potential and the development of more gas reservoirs.
Luft, on the other hand, remains skeptical about the pipeline, saying that even if Europe wants to diversify its energy imports, it can get natural gas more cheaply from the Caspian Sea and the United States, or through liquefied natural gas, and that precludes the prospects of getting it financed.
“Nobody will fund it,” he states. “It’s a nice story, but it hasn’t impressed the bankers. I don’t think the situation in Europe will trigger a situation where they say ‘Let’s turn to Israel.’ At the end of the day, the bankers must push the button.”