"The underground facility" is what Israelis call a strategic installation. The precise details, and even its location, may not be published. It is only possible to mention that it is located somewhere in the south, deep underground, protected from conventional and nonconventional, even nuclear, attack.
It was built in the 1990s to provide Israel with a strategic reserve of fuel in case oil imports are severed because of war or embargo. Adv. Moshe Shahal, the energy minister at the time, initiated the facility on the basis of the recommendations of the Agranat Commission, which investigated the failures of the 1973 Yom Kippur War. In that dismal October, Israel was caught with insufficient jet fuel and was forced to ask for an immediate shipment from the US.
The facility was inaugurated in 1996, with then Minister of National Infrastructures Ariel Sharon cutting the ribbon. So far as is known, the last time the facility was used was during the 2006 Second Lebanon War, when oil tankers would not approach Israel's shores.
Could Israel's problematic diplomatic situation, on the eve of a vote on Palestinian statehood by the UN, force Israel to open the facility's gates in the near future? To answer this question, it is necessary to examine Israel's sources of oil.
Most of the oil refined at Oil Refineries Ltd. (TASE:ORL) in Haifa and the Paz Oil Company Ltd. (TASE:PZOL) Ashdod Refinery comes from former Soviet countries, principally Azerbaijan. The oil is transported via the Baku-Tbilisi-Ceyhan pipeline (BTC), which runs from the Azeri capital of Baku, through the Georgian capital of Tbilisi, to the Turkish Mediterranean port of Ceyhan.
Other oil enters Israel from tankers from the Black Sea through the Turkish-controlled Bosporus to the Mediterranean.
Might Turkish Prime Minister Recep Tayyip Erdoğan try to block Israel's oil jugular? Major General (res.) Oren Shachor, a former chairman of Eilat-Ashkelon Pipeline Company Ltd., which owns the oil terminal for deliveries, says that there is little chance of that. "BTC is owned by an international consortium," he says. "The Turks cannot stop the flow of oil through the pipeline or prevent oil tankers arriving at Ceyhan to take on shipments without being sued and suffering a serious blow to their credibility in the eyes of the business community."
The 1936 Treaty of Montreaux guarantees free passage in peacetime of ships through the Bosporus Straits and Dardanelles, in exchange for giving Turkey control over them. Under the treaty, Turkey cannot block ships from travelling through the Bosporus.
Shahal also sees no scenario of a halt in the flow of oil. "In my experience, there was no problem in obtaining oil, even during the most difficult times, including from countries with no diplomatic relations."
Ministry of National Infrastructures Gas Administration director Shuky Stern agrees. "To the best of my recollection, and I have a long memory, there was never a time when there was a shortage of gasoline at gas stations."
Israel faces a real natural gas shortage
While the threat of an oil shortage is theoretical, the natural gas problem is very real. Egypt, which is contractually committed to supplying a third to half of Israel's natural gas needs has not met its obligation since the fall of President Hosni Mubarak. This year, it delivered just 20% of its contractual obligations, and deliveries halted altogether in July.
This leaves Israel with just one source of natural gas: the Mari B well of Yam Tethys, owned by Delek Group Ltd. (TASE: DLEKG) and Noble Energy Inc. (NYSE: NBL). The problem is that Mari B reservoir is rapidly running out.
Israel's citizens are directly feeling the result. The price of electricity was raised 10% because Israel Electric Corporation (IEC) (TASE: ELEC.B22), the country's main natural gas consumer, has been forced to generate electricity with more expensive (and more polluting) diesel and industrial oil, instead of natural gas.
Given the severe natural gas shortage, the Ministry of National Infrastructures is promoting the construction of a system for the import of liquefied natural gas (LNG) by LNG tankers to a floating buoy and natural gas gasification ship. The cost of gas delivered in this way is much higher than Egyptian gas, but still only a tenth of the cost of diesel.
The buoy will be position a few tens of kilometers offshore from the IEC coal terminal at Hadera. Gas deliveries could begin within a year.
"In hindsight, we obviously could have done more," says Stern. "We could have pushed the buoy solution harder, and we could have pumped less gas from the Yam Tethys reservoir."
Shahal has another idea. "Until the Tamar reservoir is ready for regular operations, I proposed to the infrastructures minister to import up to four billion cubic meters of compressed natural gas (CNG) for the national reserve, for use when necessary. This would be enough to meet Israel's electricity needs for a year."
Using gas in industry
The experts believe that the natural gas shortage is temporary, and will end in mid-2013 when Tamar, owned by Delek and Noble Energy with other partners, will come on line. Tamar is located in deep water 90 kilometers offshore. Together with Leviathan, also owned by Delek and Noble Energy with Ratio Oil Exploration (1992) LP (TASE:RATI.L), Israel has, on paper, gas reserves to meet its needs for decades.
"The latest gas discoveries are an excellent source for reducing Israel's geopolitical dependency and ensuring energy independence," says Dr. Amit Mor, co-CEO of energy consultancy firm Eco Energy Ltd. He believes that natural gas will, within a few years, replace coal and other fuels for the generation of electricity as well as gasoline and diesel for vehicles. "We're at the start of a process in which natural gas will drastically reduce Israel's dependence on oil imports. We forecast that gas will drive almost 70% of Israel's electricity production, up from 37% today, and zero seven years ago."
Mor adds, "Gas will also be integrated in manufacturing, replacing diesel and fuel oil. In the medium and long term, gas will also become a fuel for transportation, which is currently completely based on oil products."
The survivability problem
Regrettably, reliance on natural gas also incurs serious risks. Drilling rigs are strategic targets for potential attackers. This problem of survivability is well known to the parties involved in the industry. The survivability problem is exacerbated because all of Israel's natural gas enters the country via a single terminal at Ashdod, and there is no back-up system or alternative pipelines.
The onshore pipeline is still unfinished, and any breakdown is liable to shut it down altogether. Repairs or leaks in the undersea pipeline could take months.
One way to improve the gas network's survivability is to establish a natural gas strategic reserve, similar the oil strategic reserve. Another way is to build a pipeline with more terminals.
"We're examining the feasibility of using the current land reserves - such as Rosh Zohar at Arad - for storing natural gas," says Stern. "We're naturally talking about a solution that will cost almost as much as building another gas terminal in the north. If I had to choose between the two solutions, I'd lean toward building another terminal in the north."
Former IEC CEO Amos Lasker believes it would be nationally irresponsible to rely solely on natural gas until the network survivability problem is solved. "What will we do if there's an earthquake at sea and we're completely cut off from natural gas?" he asked at a recent conference. "Will we fly gas in by plane, or bring in by truck?"
In the heat of the argument over oil and gas, the importance of alternative energy sources, of which Israel has plenty, is often forgotten. The most important is solar energy.
Israel has been promoting photovoltaic (PV) facilities in recent years. These systems, currently only installed on roofs, provide 1% of the country's electricity. After prolonged bureaucratic delays, the road to larger solar farms has finally been opened.
"It is very important to continue to diversify electricity production by developing renewable energy sources," says Mor. "As for solar energy, it is necessary to encourage the construction of mid-sized and large PV and thermosolar energy facilities."
Solar energy can be used for other things besides generating electricity. For decades, Israelis have used thermosolar heaters for hot water. Prof. Gershon Grossman, the head Energy Forum, the Samuel Neaman Institute for Advanced Studies in Science and Technology at the Technion Israel Institute of Technology, notes 1980 regulations, which mandate the installation of solar water heaters on the roofs of private buildings.
Solar water heaters currently generate 3% of Israel's primary energy consumption. "Current regulations only apply to the household sector," says Grossman. "If it were expanded to the business sector, it would be possible to increase the use of solar energy."
Grossman also proposes using solar energy for air conditioning systems. Air conditioners are the largest consumers of electricity for households, and their use correlates with peak hours of electricity use.
Published by Globes [online], Israel business news - www.globes-online.com - on September 22, 2011
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