How Bibi’s 'Gas Plan' Will Ruin Israel’s Air Quality

The economy should undergo a conversion from filthy fossil fuels to clean, cheap, healthier gas. But that’s not going to happen.

Minister Yuval Steinitz, left, with Prime Minister Benjamin Netanyahu. Steinitz and the Energy Ministry people looked only at the development of the gas fields, and didn’t even think about how to convert Israel to gas.
Emil Salman

As last week rolled to a close, oil tumbled, together with the globe’s stock markets, as people quaked at the thought of a Chinese economic meltdown, and also because of the crude being stockpiled in every available nook and cranny of the world.

As far as Israel is concerned, this situation has its good sides, and its bad sides. A global economic slowdown would hurt us too by weakening our exports. But a decrease in energy prices could only be a good thing because the gasoline and heating oil that Israel must import would cost less. Almost every manufacturing plant will be saving money.

But not only oil prices plunged. So did natural gas, and not only in spot prices but in medium-range transactions and liquefied form as well. In Britain and other parts of Western Europe that are net gas importers, liquid natural gas tumbled to almost $4 per million BTU (British thermal unit, or, the amount of work needed to raise the temperature of one pound of water by one degree Fahrenheit. Gas importers pay according to the price of LNG brought by tanker.) In other countries that produce their own gas, the price dropped to about $2.

In other words, the surplus supply, economic slowdown and screaming-red trading screens have reached the gas market.

According to the Gas Exporting Countries Forum, global capacity will be expanding by about 50% within three years, adding no less than 200 billion cubic meters of LNG.

Meanwhile, the global trade in gas is primarily driven by immediate transactions and delivery, which means prices have become roughly equal everywhere.

How will all this affect the development of Israel’s natural gas fields?

After factoring in the heavy cost of liquefying natural gas, and its transport in special tankers (though the cost of using them has also fallen) – the bottom line is that the undeveloped Israeli fields, including giant Leviathan and smaller Tanin and Karish, or the Daniel fields just announced, may not be worth developing for export. And that’s before factoring in royalties and tax payments by the gas companies.

If Israel can’t export the gas, and it shouldn’t at these prices, the only possible buyer for it is the domestic market.

That sounds like great news for opponents of such exports by Israel, who argue that the country should keep every methane molecule for its own use (“energy security”). Britain, for example, used to have oodles of gas but is now a net importer.

So, at these prices, we could keep our gas: We could convert the economy (and electricity production) from filthy fossil fuels to clean, cheap, healthier gas. Even buses and trucks could be converted from diesel to gas.

But it’s not going to happen.

Because of the drop in energy and oil prices, and because industrial plants, and bus and trucking companies can buy cheap fuel with excise tax breaks at that – they have no economic incentive to go over to gas.

Who's to blame?

So, filthy gasoline has become cheap, while domestically produced natural gas – which Prime Minister Benjamin Netanyahu’s gas plan would lock into a price range of $4.70-$5 – remains relatively expensive, and that’s before adding the cost of converting systems to use gas.

In other words, we have huge quantities of gas, and we’re its only customers, but Israel isn’t going to switch over from dirty fossil fuels to clean gas and won’t save itself billions of dollars a year on healthcare because of the fuels that are polluting the air.

You can already see the future “gas fiasco” investigation in your mind’s eye, looking into how the government scuttled a healthier, cheaper life for the people.

Whose fault is this situation?

Blame everybody who created it, and who did not prioritize correctly, assuring a steady supply of cheap gas for Israel as the primary goal.

The first in line for blame is Yuval Steinitz. He’s energy minister now, but back then he was finance minister and he did mean well when he launched the Sheshinski Committee to discuss the royalties Israel should get from allowing businesses to exploit natural resources. But the upshot is that Israeli gas is expensive because of the tax. It’s all very well to think that the public “gets back” much of the income from selling it. But the gas costs so much that it doesn’t pay for Israeli consumers to begin to use it, at least at current prices.

On top of the emphasis Steinitz placed on the state receiving income from the gas, he failed to understand what developing the gas market would mean for Israel: Steinitz and the Energy Ministry people looked only at the development of the gas fields, and didn’t even think about how to convert Israel to gas.

Some quip that the “Natural Gas Authority” should be called “The Authority for Not Using Natural Gas” because its objections keep preventing local industry for opting for using cleaner gas.

But the fact is that everybody who took part in creating the gas plan is to blame. They did not create competition. They did not build a mechanism to oversee prices, which is why Israeli gas is too expensive.

The ones who needed a “regulatory horizon” are the very ones for whom the gas creates no horizon at all – consumers, and also local industries, which afraid to convert; transport firms, which feel they’re driving into a haze of uncertainty; and supply companies, which need to build distribution infrastructure and fueling stations.

By now the Energy Ministry, the Prime Minister’s Office, the Finance Ministry and the Environment Ministry have grasped that the global drop in fuel prices ruined the working assumptions they used when negotiating the gas plan with the production companies (Delek and Noble Energy). Even the Bank of Israel admits this.

One has to wonder when the health minister, Yaakov Litzman, and his officials will also grasp that preventing Israel from converting to gas could have saved us billions in future healthcare costs.

Haaretz has called before for the Bank of Israel and the government to reveal the data and show the people exactly how much tax funding they’ll be getting from the sale of the gas. Nothing happened. MK Yael Paran (Zionist Union) also contacted the Bank of Israel for numbers and didn’t get any, though from the bank’s answer, she learned that the “drop in world gas prices raises material questions about the merit of exporting gas.”

How all this will affect the state budget, let alone the wealth we were promised for investment in healthcare, education and welfare, remains to be seen. The Bank of Israel didn’t go into that.

The prime minister and energy minister already made fools of themselves last summer, when during their “tour” to market their gas plan, they presented prices dating from mid-2014. Those prices were 30% higher than on the day they were talking. Since then, prices have fallen by another third. So, gas has fallen by two-thirds. The economic merit of developing the gas fields, exporting some and converting the Israeli economy away from oil and diesel is shrouded in dust. And that's not funny at all.