Risk of natural gas shortage will push up electricity prices, budget chief warns
Israel’s natural gas reserves for domestic use set to fall short of energy demand in next 25 years, Treasury says, urging reduced exports, greater quantities saved for home market
Sharon Wrobel is a tech reporter for The Times of Israel
Israel is poised to face a natural gas shortage in the next 25 years as domestic energy needs are growing faster than forecasted and gas export sales are robust, the finance ministry warned.
“Israel’s energy sector faces significant challenges in terms of both energy security and the competitive landscape,” the Finance Ministry’s budget department said in a position paper released Thursday. “Looking ahead, for the first time [since the discovery of Israel’s large offshore gas reserves], a structural shortage of natural gas for domestic use is expected in the next 25 years.”
A shortfall would lead to higher electricity prices for consumers, according to the Finance Ministry’s budget division, led by Yogev Gradus. That is because more than 70% of Israel’s electricity is generated from domestic natural gas production. Gradus urged the government to revise its current policy for retaining natural gas for domestic use so as to ensure the country’s energy independence for the coming decades.
In the position paper sent to Israel’s Energy Ministry and other ministries, Gradus called on the government to update the current quantity of 440 billion cubic meters of natural gas reserved for domestic use to 515 BCM for Israel to meet the growing domestic energy needs of households and businesses in the next 25 years.
The Treasury argued that since the last update on the gas reserve policy for domestic use, the deployment of renewable energy in the country has been slower than expected, and the infrastructure for storage of natural gas has not been established, while gas export sales are continuing to rise.
Israel was supposed to generate 10% of its energy from renewables by 2020, but only reached 9.2% at the end of 2022. If current trends continue, only 19% of energy would be generated by renewable sources by the end of the decade, compared with an official goal of 30%.
Since Israel first discovered large natural gas fields off its Mediterranean coast more than a decade ago, the country has emerged as a gas exporter. Its natural gas operations have put it on a path to energy independence — and have shielded it from the worst of the energy crisis sparked by the Russian war on Ukraine this year — in a region with few natural resources.
The Leviathan natural gas field, the nation’s largest, started pumping on December 31, 2019, after natural gas started to flow in 2013 at the nearby Tamar, the second largest field. Tamar holds some 10 trillion cubic feet (tcf) of natural gas, half of the quantity held in Leviathan.
Israel has been exporting gas from the Tamar field to Jordan since January 2017, and the Leviathan field started exports to Egypt in January 2020. The Leviathan deals are considered to be bigger and more significant for the economy.
Amid the ongoing war with the Hamas terror group in Gaza, natural gas exports to Egypt and Jordan increased by more than 13% in 2024 year-on-year. Overall, natural gas production was up 8.3% in 2024, and state revenue collected from gas royalties soared almost 11% to NIS 2.37 billion ($670 million).
In June 2022, Israel, Egypt and the European Union signed a memorandum of understanding that will see Israel export its natural gas to the bloc for the first time. According to the agreement, Israeli gas will be supplied via Egypt’s liquefied natural gas (LNG) plants to the European Union.
In the report, the finance ministry’s budget department also warned about the high concentration in the local gas market, citing the cross-ownership of US energy giant Chevron in Israel’s largest gas reservoirs. Chevron operates and holds a 25% stake in the Tamar gas field, and a 39.66% stake in the Leviathan gas reservoir.
“This concentration poses a risk to price levels, energy security and the long-term competitiveness of the economy,” according to the position paper. “Putting the operations of essential gas infrastructure in the hands of a single entity, without a substantial competitive alternative, creates a captive market in which consumers have no real ability to negotiate or secure fair prices over time.”
“This concentration could lead in the near term to an increase in gas prices and, as a result, lead to higher electricity prices,” it added.
In the position paper, the ministry called on the government to take structural steps to reduce concentration in the domestic gas market.
One of the recommendations is to consider, from 2030, limiting holdings to no more than one rig that produces gas in Israel, if these holdings constitute more than 80% of the gas reserves in the economy.
In response, the Energy Ministry said that it seeks to “secure the supply of natural gas to the economy at the lowest price, and the right way to do this is through the discovery of additional reserves, the entry of new international companies, and creating competition.”
“We are closely monitoring natural gas prices in the Israeli economy and we will use all the tools at our disposal to secure price levels without being dragged into the misguided steps put forward by the Finance Ministry, that will drive away international companies, prevent the discovery of new reserves and result in price increases,” the Energy Ministry said. “Unfortunately, the position paper is not in line with reality and does not take into account recently signed contracts.”
“Similarly, predictions about an expected shortage of natural gas are unfounded and create unnecessary panic,” the ministry said.
The Times of Israel Community.