Opinion |

Israel’s Gas Industry Is Dying a Death by a Thousand Cuts

America’s decision to withdraw its support for the EastMed pipeline, upsetting Greece and to Turkey's delight, is due partly to confused climate change politics

David Rosenberg
David Rosenberg
Greek Prime Minister Kyriakos Mitsotakis and Israeli Prime Minister Benjamin Netanyahu attend a joint news conference following the signing of a deal to build the EastMed subsea pipeline to carry natural gas from the eastern Mediterranean to Europe, at the Zappeion Hall in Athens, Greece, January 2, 2020.
Different times: Greek PM Kyriakos Mitsotakis and Israeli PM Benjamin Netanyahu sign the pipeline agreement, January 2020Credit: ALKIS KONSTANTINIDIS/REUTERS
David Rosenberg
David Rosenberg

It was the cause of much consternation in Greece and equal amounts of joy in Turkey. But in Israel, which on the surface would seem to be the biggest loser of them all, the news that the United States was withdrawing its backing for the East Mediterranean gas pipeline has elicited virtually no reaction at all.

The pipeline is – or as it appears now, was – an ambitious project to deliver gas from the Eastern Mediterranean to the giant European market by way of Greece. The gas would have come from Israel and Cyprus, but the reality is that Israel would have been the biggest beneficiary.

Israel is already producing and exporting gas, and it has more proven reserves than Cyprus. Cypriot gas development, meanwhile, has been ensnared by aggressive Turkish opposition and, even if that can one day be overcome, Cyprus has fewer proven reserves of gas to exploit.

EastMed’s critics said from the get go that the pipeline faced insurmountable technological problems and would never be financially viable. Projected to run 1,900 kilometers under deep Mediterranean waters, its $7.9 billion price tag was too big for the amount of gas it could carry.

If the critics were right, all the hopes of Israel, Cyprus and Greece were a nonstarter. Without EastMed, there’s no European market and no one to sell a lot of gas to. Most of the gas under East Mediterranean waters is doomed to be a stranded asset, reserves that have been discovered but can’t be exploited.

But technology advances have the habit of proving skeptics wrong about a lot of things, and the pipeline could have been one of them. But it seems now that will never be put to the test.

Washington’s decision to end its support for the EastMed pipeline doesn’t quite put an end to the dream shared by Israel, Cyprus and Egypt of turning the East Mediterranean into a major gas producer. But it underscores the fact that gas is going to be a much more modest business than many once hoped.

Washington chose to announce its policy change in the lowest possible key. It never explicitly said it is opposed to the pipeline. But the message issued in Athens January 10 that “we are committed to deepen our regional relationships and promote clean energy technologies” clearly doesn’t include natural gas. Gas may not be quite as dirty as coal or even oil, but environmentalists loathe it just the same.

Before he signed on as an energy adviser to the U.S. State Department, Amos Hochstein articulated the new American sentiment in a Turkish anti-pipeline propaganda film called "The Pipe Dream."

“Why would we build a fossil fuel pipeline between the EastMed and Europe when our entire policy is to support new technology... and new investments in going green and in going clean?” he asked.

Suddenly, green

There’s a bit of hypocrisy in America’s new green spirit. The U.S. is on its way to becoming the world’s largest exporter of liquefied natural gas this year, and American companies are investing billions to expand capacity at home and abroad. Apparently, in America gas remains good; in the East Mediterranean, it’s a danger to the planet.

But more importantly, there’s a bit of stupidity, too – and this is Europe’s and Israel’s contribution.

Decarbonization, the process of weaning economies off fossil fuels, is moving apace in the very place EastMed’s gas was supposed to go. The European Union wants to cut its greenhouse gas emissions by at least 55 percent by 2030 and to zero by 2050. In the process Europe has shut coal-fired power plants and let its own gas production decline in favor of wind and solar power.

Its rush into green energy hasn’t exactly gone smoothly, and that’s the stupidity part: Europe is now in the midst of a severe energy shortage much of which is due to a thoughtless, headlong charge into renewable energy. It turns out renewables can’t entirely fill the fossil-fuel gap the EU’s green policies have created.

On paper, the EU continues to support EastMed, and if common sense ruled, it would continue to do so both to ensure it has enough energy as it transitions to renewables and reduce its reliance on Russian gas.

But European policymakers seem hell-bent on pursuing decarbonization. Climate change politics are fated to trump sensible energy policy. The joy expressed by Recep Tayyip Erdogan that with EastMed now dead, Israel will have no choice but to pipe its gas through Turkey and onward to Europe, has little basis in reality.

Without EastMed, the only real export market Israel (and one day maybe Cyprus) has is to pipe gas to Egypt, which sends it to Europe by ship as LNG. Israel is already doing that, but as energy dreams go, it’s quite modest: Thanks to soaring demand, Egypt’s two LNG plants are already operating at full capacity using local and Israeli gas. Also, LNG is a tough, competitive market.

Unfortunately, the same kind of stupidity Europe is exhibiting is also manifesting itself in Israel, where Energy Minister Karin Elharrar last month announced that she was suspending new gas exploration for 2022 in order to concentrate her ministry’s efforts on renewables.

On the surface, it’s a relatively modest concession to the environmental lobby: There will be no auction for drilling rights this year, but licenses that have been awarded remain in force, and in 2023 an auction will take place. Or not. Elharrar is sending a message that Israel is no longer fully supportive of its gas sector. A one-year suspension could easily turn into a two-year suspension and from there, who knows? If there ever is an auction, bidders will hesitate.

So, while it is true that Israel is way behind in meeting its targets for renewable energy usage, there’s no reason why the Energy Ministry can’t be encouraging alternative energy and auctioning gas licenses at the same time. Elharrar made a political decision, not a rational one.

The bottom line is that both on the supply and demand side, Israeli gas is being squeezed. Tamar, Leviathan, Tanin and Karish – all those gas fields we’ve grown (depending on your view of the gas industry) to love or hate – will be the sum total of the Israeli gas industry.

It’s not a disaster – there’s enough gas to meet Israeli needs for decades to come and to export what’s left not only to Egypt but to Jordan, the Palestinians and maybe even Lebanon. These are all small markets but politically important ones. But the idea that Israel and its neighbors could someday become a downsized version of the Persian Gulf is not to be.

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