“Success, political will and open market for investors is a necessity to fully ensure itself with gas”, Constantine Blyuz, the Ministry of Energy of Israel
Israel and Ukraine are very different countries that have a lot in common: a military conflict, a large number of Russian-speaking population, gas fields, anxiety about their own state and energy independence.
Constantine Blyuz, the Deputy Director, Natural Gas Authority Israel of the Ministry of Energy, exclusively for Kosatka.Media, expressed his thoughts on how Israel succeeded to achieve its gas independence and what Ukraine should learn from this example.
What was 10 years ago? And it’s luck that it is not like before.
What was considered a revolution 10 years ago, it would be treason and punished to the fullest extent today. By the decision of the government from 2008 by 2020, coal generation was supposed to be 50% of electricity production, gas – 40% and renewable sources (sun and wind) – 10%. But, since then, not a single new coal station has been built, moreover, the people forced the Ministry of Energy to reduce the annual volumes of coal consumed, and with respect to renewable sources there was an implicit thought that the best thing the state can do for the environment is to stop spend money hand over fist. Therefore, almost all the additional demand for electricity has been transformed into an increase in demand for natural gas.
Israel came to this market very late (in 2004), but unlike Ukraine, the main consumers of gas are power plants, the regulator only wanted to encourage the switching of the stations of the national electric company from fuel oil and gas oil to gas and promote the construction of new thermal power plants, in which gas would be the main fuel.
To liberalize the market from the first gay was another important decision, in other words, to make suppliers and customers to negotiate themselves, bypassing government authorities. The competition between Israeli, Egyptian and potentially Palestinian suppliers made it possible to start the construction of private power plants and the rapid growth of natural gas share in the production of electricity; which in turn, stimulated the search for gas and the development of the gas transmission system.
Today, power plants are about 80% (8.9 of 11 billion cubic meters) of all gas consumed in Israel. On the other hand, an attempt to develop supply networks in the same way failed – insufficient demand resulted in underinvestment, so supply networks are being built mockingly slowly, and recently with government funding.
What helped Israel to become a gas producer?
Israel became a gas producing country due to three main factors: a) luck; b) the closure of state-owned companies; c) a great political will.
There were three state-owned companies, and all of them were financed from the state budget and they drilled a lot and stupidly. As soon as they disappeared from the market, several enterprising souls appeared who, due to their personal assertiveness were able to interest private investors and “milk” them for drilling on the shelf, thanks to which several tiny deposits were found in the late 90s and then Mary B – 30 billion cubic meters, on the basis of which the first power plants were switched to gas.
But the idea was not only in independence, as in the development of the gas sector. And therefore, gas purchases in Egypt were not limited in any way, and the government of Ehud Olmert (16th Prime Minister 2006-2009 – ed.) made considerable efforts to develop the Gaza Marine field in Palestine. By the way, this deal was ruined by “expert officials” – a rare case when politicians turned out to be much more reasonable than “professionals”.
Perhaps the most important factor in the development of the Israeli gas sector was a huge and consistent political will. A rather rare case in our realities is when the head of government personally (the actual head of state, presidential functions are more representative) Benjamin Netanyahu (current Israeli Prime Minister – ed.) since his election in 2009, which coincided with the discovery of the Tamar field, pushed the gas revolution through all bureaucratic gullies, storms of local and national protests (both sponsored and sincere), as well as the toughest political battles. Several times it literally “pulled the hippo out of the swamp”. And this is a very special situation, because in many other cases, the head of government is forced to go on about the coalition partners and maneuver between the waves of overt populism – but it was precisely in the gas issue that Netanyan personally harnessed himself to the cart and pulled it out, thereby inspiring regulators and experts.
Not only production, but also export
For the time being, Israel plans to develop local export routes – Jordan (0.2 billion cubic meters this year, about 3.5 billion cubic meters from the next), Egypt (contracts for 6.5 billion cubic meters per year), the Palestinian National Authority (as far as the construction of Palestinian power plants – the potential is about 1.5 billion cubic meters per year). Another interesting area, which was the main one five years ago, is the export of LNG through Egyptian terminals. But this, like export to/through Turkey, as well as building own LNG terminal, as it is said in Alice in Wonderland: “The plan is, of course, excellent: simple and clear, it’s the best one. There’s only one drawback: it is not known how to enforce it".
Another interesting but challenging project is gas export to Europe via the EastMed pipeline. In order for EastMed Pipeline to be ever built, all the stars must settle in a very elegant way. Firstly, from an engineering point of view (length, depth) we are talking about one of the most complex infrastructure projects in history. Secondly, the European natural gas market, to put it mildly, does not accelerate. And here it is necessary to compete with the Russian Federation, with LNG and North African gas. Thirdly, the issue of filling the pipe remains open – 25 billion cubic meters are needed per year so that it is noticeably more profitable than the LNG terminal. Israel and Cyprus can give such quantities with a very big stretch, and Egypt’s readiness to export both LNG and gas through a new pipe, against the background of galloping domestic demand, is also in doubt. At the same time, the project is really terribly interesting, both economically and geopolitically, and I think that the next few years will be marked by (or in the shadow of) EastMed.
Energy security in the midst of military conflict
Israel has been an energy island for many years and has been completely cut off from its neighbors. Therefore, the issue of energy security has always been quite acute. Power plants should always have significant reserves of fuel, the “dualism” of power plants is also obligatory – any power plant of more than 50 MW must be ready to switch to spare fuel at any time (gas-gas oil, coal-fuel oil).
In addition, it is well known that any objects in Israel may be subjected to rocket attacks, attacks from the sea or from the air, as well as cyber-attacks, not to mention local terrorism. Against all this, measures are being taken, about which I, naturally, cannot spread. But I can say that direct hostilities rarely affect the energy system itself.
Of course, investors take geopolitical risks into account, but today they, to one degree or another, are almost everywhere. In my opinion, the decision whether or not to invest in Ukraine’s energy sector will depend not on geopolitical factors, (excluding companies with direct interests in the Russian Federation), but on the willingness to provide investors with guarantees of normal operations.
As Professor Preobrazhensky said: “But only one condition: by anyone, anytime ... it should be such a piece of paper, in the presence of which neither Shvonder nor anyone else could even approach the door of my apartment. The final piece of paper. Actual. Real! Armor! ”
In order for Ukraine to reach its cherished goal and turn from an importer into a net exporter of gas, first of all, success is needed — nothing can be done, this is the most important factor in natural resources. And all that I have already mentioned: political will, private investment, the willingness of the regulator to listen to market players. And not only for a tick, but in order to create the conditions under which their money is protected, this will be rewarded a hundredfold. Moreover, it does not mean a complete abandonment of state-owned companies, at the first stage of the reform, they are probably necessary to maintain the fire in the furnace. And at the same time, you must always see before you the ultimate goal. And do not be discouraged.