If Egypt Won’t Buy Israel’s Gas, Maybe Israeli Consumers Will

Government pilot project aims to hook up 15 new neighborhoods to the nationwide pipeline and encourage wider use of natural gas in homes

A gas pipeline in Israel.
Eyal Toag

If Israel is having trouble selling its natural gas overseas, maybe it will have better luck selling it to Israeli consumers.

That’s the reasoning behind a pilot project to hook up 15 new residential neighborhoods to the national gas pipeline network. Instead of having gas cylinders delivered by truck, homes would be connected by pipeline and gas could then be used for more things than cooking and heating.

The Energy Ministry, which is behind the project, faces a lot of skepticism from the local industry about the economic viability to households using more gas. The pilot, which will include subsidiaries to the tune of 80 million shekels ($22.7 million), aims to prove them wrong.

“There’s a lot of uncertainty about it, so the government is acting wisely and before it jumps into the deep waters of regulations it is examining for itself and for the gas distribution companies whether they can provide the service,” said one source involved in the project.

Israel is sitting on cast reserves of natural gas, far more than the domestic market as currently configured can use. But efforts to develop export markets have encountered obstacles. An agreement to export gas to Egypt, for instance, has been delayed by technical and security problems.

Under the ministry plan, 15 neighborhoods now or soon to be under construction in places like Jerusalem, Acre, Ashdod and, Kiryat Ono and Lod would be linked to the national network. Each neighborhood is characterized by high density housing of 1,000-3,000 units and is close to the pipeline network.

An aerial view of the foundation platform for the Leviathan natural gas field in the Mediterranean Sea, about 130 kilometres (81 miles) west of the coast of Haifa, January 31, 2019.
Marc Israel SELLEM / POOL / AFP

Each of the five gas distribution companies will be assigned different neighborhoods.

The cost of laying pipes to homes is estimated at between 3 million and 4 million shekels per kilometer. That is a cost that would normally take the distribution companies years to recover if they have to compete with propane gas delivered in cylinders, which costs on average 40 shekels a month per household.

Home use of natural gas is Israel is very limited, but the Energy Ministry is hoping the pilot will encourage households to consider using it for such tasks as air conditioning and clothes drying. Officials are also hoping that small shopping malls will use natural gas.

However, industry sources told TheMarker they are skeptical that the ministry can effect a change in Israeli habits. Although gas-powered appliances are regarded in the countries where they are widely used as more energy and cost efficient, critics are skeptical Israeli households will make the change because it would require them to buy new appliances.

The critics say the pilot is more about giving a boost to the gas distributors, who haven’t found the business of selling natural gas to factories to be profitable.

“There are five distribution companies and they [the Energy Ministry] has been trying to keep them on life support for years,” said one industry source, who asked not to be identified.

Formed a decade ago, the five companies were committed to hooking up 500 industrial plants to natural gas. But they have reached only 10% of the target and have earned minimal revenues, despite a combined investment of 500 million shekels for infrastructure.

The ministry has sought to help them, by refraining from imposing penalties for failing to meet targets and offering 600 million shekels in incentives to coax factories to use gas.

“With the technology that exists today, the household market isn’t waiting with baited breath for natural gas. It doesn’t want it. It’s not economically viable by any measure. Water is heated by [rooftop] solar power in most homes, and I don’t see anyone replacing their air conditioners and dryers was gas compatible models,” the source said.

Industry sources said the ministry was using models from countries where conditions are different from Israel’s, such as countries that need much more heating in the winter than Israel’s mild Mediterranean winters require. However, they conceded that local cooling needs were important.

“In new neighborhoods it makes more sense to use photovoltaic energy. Its costs are lower and it doesn’t create any environmental problems,” said another industry source.

In addition to the pilot residential project and factories, the ministry is encouraging big hospitals and army bases to install gas generators to increase domestic demand.