Opinion |

Israel Is Back in the Gas Business. Thanks, Putin

Out goes climate change, in comes fill’er-up: Energy Minister Karine Elharrar abruptly reverses Israel’s freeze on oil and gas exploration

David Rosenberg
David Rosenberg
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Gas compressor station in Polish section of Yamal pipeline that links Russia with western Europe, Gabinek, Poland May 23, 2022.
Gas compressor station in Polish section of Yamal pipeline that links Russia with western Europe, Gabinek, Poland May 23, 2022.Credit: Kacper Pempel/REUTERS
David Rosenberg
David Rosenberg

I have to admit that when Energy Minister Karine Elharrar makes a U-turn, she does so with incredible finesse.

Just six months ago Elharrar had ordered a one-year freeze on new exploration for natural gas in Israeli waters in order to focus the ministry’s efforts on renewables. Fears of climate change and gas’ contribution to it were behind the decision, and many assumed the suspension would become permanent. On Monday, however, Elharrar announced she had approved a new auction for gas exploration licenses.

If your entire knowledge of the issue was confined to the official press statement, you wouldn’t know she had just changed direction at all.

Elharrar never mentioned that she ordered a freeze; nor did she engage in the “drill, baby, drill” ranting of fossil fuel enthusiasts. Rather, Elharrar spoke about a “genuine and sincere concern about the events taking place in Europe,” Israel’s “energy security” and of “diversification of our sources of energy” and tipped her hat to “investment in renewable energies.”

So what caused Elharrar to change mind so quickly? The answer, of course, is the war in Ukraine, which has upended global energy markets and caused the world to reconsider all the energy calculations it had made prior to February 24, including the urgency of saving the planet from climate change apocalypse.

For Israel, the relevant part of all this upheaval is that Europe is determined to wean itself off Russian gas and oil. But to do that, it has to find alternative sources, and there aren’t a whole lot of them.

Israel isn’t going to save Europe with its gas any more than it can save Ukraine with Iron Dome or by impounding oligarch’s yachts. But Israel can be helpful to Europe, in partnership with the other East Mediterranean gas producers, Egypt and Cyprus.

For its part, the European Union is interested: Within a couple of weeks of the Russian invasion, Elharrar was meeting with EU Energy Commissioner Kadri Simson. The idea is to establish a political framework to provide official backing to the private-sector Israeli-Egyptian gas exporters that will actually will make the deals.

This is quite revolutionary, and prima facie evidence of how Vladimir Putin has changed everything.

For years, the EU enjoyed ample supplies of cheap natural gas from Russia and wasn’t in the market for the Egyptian stuff, which has to be delivered as more costly liquefied natural gas. Egyptian President Abdel Fattah al-Sissi’s abysmal human rights record deterred the Europeans from doing business with Egypt, and Europe was bent on reducing its carbon footprint and didn’t want more fossil fuels.

But just as climate change has taken a back seat to energy anxiety, so has human rights.

Unreliable winds of change

That said, the Ukraine war has upended the energy world a little less than Elharrar and many others would have you believe. Even before the fighting got underway, world natural gas prices were soaring. That was due to a combination of rising demand as the coronavirus pandemic receded and because Europe was cutting back consumption of fossil fuels faster than they were developing alternative energy sources. And, as it turned out, the latter weren’t so reliable.

Even under the pre-war circumstances, Elharrar’s original decision to freeze new exploration had been wrongheaded. The world wasn’t going to be following two straight-line trajectories, one of rising use of renewables and another of declining fossil fuel usage. The transition is too complicated and risk-laden, as the war in Ukraine has demonstrated.

Elharrar’s about-face should eventually increase production – although not for quite some time, since it has to go through the process of the auction being arranged, the bids submitted and processed and the winners then conducting that actual exploration. And that assumes they find commercially exploitable reserves of gas. Energean’s latest discovery, three weeks ago, of 8 billion cubic meters, fell far short of expectations.

Environmental groups, which are livid over Elharrar’s U-turn, point out that getting the gas into production will take so long that the Ukraine crisis may well be over and the demand with Israeli gas will evaporate. That’s a risk, of course, which will fall on the companies that take the drilling licenses, not on the Israeli taxpayer. But, in any case, it’s hard to imagine the energy market returning to its pre-war era. Europe has learned its lesson and will want to diversify its energy sources, war or no war.

Another problem that remains is how to get the gas to Europe efficiently and at low cost.

For many, the big dream is to build an undersea pipeline that delivers Israeli and Cypriot gas directly to Europe via Greece. But even though there is now talk of dusting off the plan, the so-called EastMed pipeline faces the same obstacles that it has in the past – it will be costly to build, technologically challenging because it runs through very deep waters, and faces stiff political opposition from Turkey.

For Recep Tayyip Erdogan, the Turkish president, the big dream is an undersea pipeline to Turkey, which would connect to its current network of pipelines transporting Russia and Central Asia gas to Europe. Erdogan has been mounting an Israel charm offensive of late, which includes warm words about a Turkish-Israel pipeline, but Israel is justifiably wary of entering into any long-term commitments, given Erdogan’s record.

That leaves exporting Israeli gas to Egypt, liquefying it at the country’s two LNG plants and then re-shipping it to Europe – a supply chain that is already in place in relatively modest dimensions. But the Egyptian alternative isn’t perfect.

For one, LNG is expensive, a problem that the Europeans may be willing to overlook now while they are desperate. Another is that the Egypt option limits the extent of exports, unless Egypt builds new LNG facilities and/or expands the existing ones to increase deliveries, and Israel builds new pipelines to ship gas to the plants.

The Egyptian leaders are game, but bear in mind, Egypt exported about 2 billion cubic meters of gas in 2021 to Europe (some of its originating in Israel presumably), compared with the 200 billion cubic meters Russia was sending it. Egypt and Israel won’t be filling Russia’s shoes anytime soon.

The final question is whether international energy companies will be interested.

The record to date is mixed. Israel’s first three exploration auctions didn’t elicit huge interest, but since then Chevron has entered the Israeli sector through the backdoor by buying Noble Energy. The Emirati company Mubadala did the same by buying a stake in the Tamar field.

The Ukraine war has changed global energy dynamics in ways we have yet to fully understand, but as it appears, on the balance, they seem to favor Israel. We’ll know better in a few months when the auctions begin.

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