Government body wants taxpayers to subsidize half of new gas pipeline
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Government body wants taxpayers to subsidize half of new gas pipeline

Natural Gas Authority invites public to comment on plan to pour NIS 350 million into project; critics say deal benefits the gas companies and not Israeli citizens

Sue Surkes is The Times of Israel's environment reporter.

The platform of the Leviathan natural gas field in the Mediterranean Sea pictured from the northern beach of Dor on December 31, 2019. (Jack Guez/AFP)
The platform of the Leviathan natural gas field in the Mediterranean Sea pictured from the northern beach of Dor on December 31, 2019. (Jack Guez/AFP)

The government has given the public until March 1, a day before Israel’s elections, to comment on plans to allocate up to NIS 350 million ($102 million) of taxpayer money to subsidize half the costs of a new pipeline for natural gas.

The proposed new line, to be built off Israel’s southern coast, between Ashdod and Ashkelon, will help a private consortium channel natural gas from Israel to Egypt as part of a bilateral deal, estimated to be worth $19.5 billion, signed last year.

The dominant partners in Israel’s Tamar and Leviathan gas fields — Yitzhak Tshuva’s Delek Drilling and Texas-based Noble Energy  — agreed last year to supply Egypt with some 85 billion cubic meters (3 trillion cubic feet) of natural gas, starting this year.

As part of the plan, the two companies finalized a $520 million package to buy the natural gas pipeline that runs between Ashkelon, on Israel’s southern coast, and El Arish, on Egypt’s Sinai peninsula. Israeli gas started flowing to Egypt last month.

An undated photo of Energy Minister Yuval Steinitz R) and Egyptian Petroleum Minister Tarek El-Molla speaking during a meeting of the Eastern Mediterranean Gas Forum, in Cairo, Egypt. (Israeli Energy Ministry/courtesy)

In original plans for the Tamar field, which started operating in 2013, Noble and Delek were supposed to build two pipelines. One, which was eventually built, runs from the well to a processing platform off the coast of Ashdod. The other would have extended to Ashkelon, where the pipe to El Arish begins.

At the time, the companies lobbied against building the additional pipeline to Ashkelon, and the government complied with their request.

Gas from the Leviathan well, which is processed just off Dor Beach in northern Israel, is transferred to Ashdod via an existing pipeline.

But once last year’s deal with Egypt was signed, the question was how to get all the gas from Ashdod to Ashkelon, 16 kilometers (10 miles) to the south.

The only way was for Noble and Delek to use an existing, on-shore pipeline between the two locations, that is supposed to supply gas to the Israeli public alone.

Now that that pipe is being used for supplies to Egypt as well as to Israel, and given that demand is expected to grow, there is a need for an additional pipe to be built.

At issue: Who should pay for the new pipeline?

Back in 2014, the Natural Gas Council at the Energy Ministry decided that if any new natural gas pipelines were to be built for the export of gas, the costs would fall wholly on the private companies involved.

Now, Delek and Noble are arguing that the new pipe will serve Israeli customers as well as help with the Egyptian deal. They argue that because the existing pipeline will shortly meet full capacity, a new one is needed to get gas from Ashdod to Ashkelon’s coal-powered Rutenberg Power Station, which is set to be converted to gas.

Apparently convinced, the council is now proposing to define the new pipe as “mixed use” and to order that as such, the Israeli public should pay for half of the expenses.

The new pipeline will cost around NIS 700 million ($205 million).

Gas stacks from the Ashkelon coal power station, seen on August 28, 2008. (Chen Leopold/Flash90)

The Natural Gas Authority’s decision to give the public a chance to comment (on what is an extremely complex issue, explained in complicated fashion in a notice posted in Hebrew online on Wednesday) comes after the council has failed for several years to appoint two public representatives to its decision-making board as required.

Lobby99, a crowd-funded nonprofit organization established to represent the public opposite the lobbyists employed by corporations, says that if Delek and Noble were not using the existing pipe for the Egypt deal, Israeli citizens would not need an additional pipe and therefore should not have to pay for a new one.

“By our assessment, Israeli consumers don’t need the new pipeline, so the entire cost should be borne by the gas companies,” said Ariel Paz-Sawicki, Lobby99’s head of research and the organization’s natural gas specialist. “This proposal will only benefit the gas companies, and if it is passed, it will be without any representatives of the public, as required by law.”

Paz-Sawicki said that Noble and Delek plan to send up to three billion cubic meters (bcm) to Egypt next year. Lobby99 consulted with experts, who calculated that no more than 2.6 bcm were needed for the Rutenberg power station.

The obvious solution was to earmark the new pipeline for gas headed to Egypt and to use the existing one for the power station, rather than the other way around, he said, in which case Delek and Noble would be responsible for all the construction costs.

Paz-Sawicki also wondered why the Natural Gas Authority is proposing that the public pay 50%. In regulations passed in 2014, the calculation had been pro rata — in other words if Israel was to use 10% of the capacity of any new pipeline, the government would provide a 10% subsidy.

Why did natural gas-rich Egypt agree to buy from Israel?

Egypt supplied Israel with natural gas until 2012, when, in the wake of the Arab spring, jihadist attacks on a section of pipeline in the Sinai Peninsula brought supplies to a halt and plunged Israel into an energy crisis.

Around three years ago, following new offshore gas discoveries, Egypt became a net gas exporter.

According to 2017 figures, Egypt holds 77 trillion cubic feet of proven gas reserves, equivalent to 37.9 times its annual consumption.

With so much to spare, it currently supplies Jordan with gas, via an existing pipeline, and ships liquified gas (LNG) to countries such as Turkey and Singapore.

With worldwide natural gas prices now below $2 per Kilowatt hour (kWh), Egyptian gas could have inserted some competition into Israel’s monopolized natural gas market. The Israel Electric Company currently pays the owners of the Tamar field more than $6 per kWh thanks to an agreement it signed that locks it into prices that only increase with time. The IEC is paying the owners of Leviathan $4.78 per kWh.

Ariel Paz-Sawicki. (Courtesy)

Paz-Sawicki reasons that it was this possibility of competition that drove Noble and Delek to buy the Israel-Egypt pipeline and ensure that Egyptian gas sales to Israel never happen.

While they own less than 50% of the pipeline, they have full operational control.

On Monday, Lobby99 met Delek Drilling in the competitions tribunal in Jerusalem for the first set of hearings on the former’s petition that purchase of the pipeline should have been prohibited on anti-trust grounds, or should be amended to allow for proper competition.

“If Egypt supplied us now, I reckon that we would be paying around $4, which is more than Egypt is getting in the European market, where competition is fierce,” he said. “The only losers would be Delek Drilling and Noble Energy. It could be a win-win for Egypt and for Israel.”

The explanation for Egypt’s willingness to buy gas from Israel, rather than the other way around, is apparently connected to yet another government decision which, on the face of it, appears to have advanced the interests of the natural gas companies, at the expense of the Israeli public.

It agreed to reduce a fine for stoppages of Egyptian gas to Israel in 2012 from the $1.7 billion mandated by the International Chamber of Commerce to just $500 million and to drop other related claims.

A statement from the Energy Ministry said that one representative of the public had served on the Natural Gas Council until March 2019 and that the council had asked the Government Companies Authority already toward the end of 2018 to appoint an additional one. The companies authority had responded that the council could legally operate without such representatives, but the ministry, according to the statement, saw public representation as important and had therefore asked again and is waiting for a reply.

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