Israel has chosen to get off the gas roller coaster – and rightly so

Israel has chosen to get off the gas roller coaster – and rightly so
Israel has chosen to get off the gas roller coaster – and rightly so

Gas prices continue to break records in the fierce competition between Europe and China. In Asian trading venues, a record price of $ 34.47 per unit of heat was recorded in immediate gas supply contracts, amid reports that Chinese authorities have instructed the country’s industrial plants to continue buying gas “at any cost.” Meanwhile in Europe, after 10 small UK gas supply companies went bankrupt, the UK government intervened and assisted factories to prevent shortages of essential products produced from natural gas. In the UK trading arena last week a record price of 32.5 was recorded in gas contracts for immediate supply.

At the start of the Corona crisis, natural gas spot prices hit $ 3. Then the demand for electricity crashed against the background of the closures, and the markets were flooded with oil and gas for which no buyers were found. The current price frenzy is due to the exact opposite reasons: rising demand for electricity against the background of economic recovery (economic activity in Europe returned to pre-corona levels and China saw a 15% increase in electricity demand this year compared to 2020) on the one hand, and difficulties Coal in China has grown by only 5% and hydroelectric power plants in the south of the country are partially operating due to dry weather.

In Europe, favorable weather caused a decrease in wind turbine output and this was joined by faults in gas production from wells in the North Sea under Norwegian control. The UK government, which in recent years has focused on developing “green” energy sources, has moved to woo traditional energy companies and is offering them a safety net in exchange for increasing wells in the North Sea.

What is important for the Israeli consumer is that the gas will flow and prices will fall

Israel, which has become a gas exporter in recent years, cannot benefit from the Titans’ struggle between China and the European Union. Israeli gas is already “addicted” entirely to customers who have signed long-term agreements with varying price linkage mechanisms. Israeli producers have no option to increase output – and even if they did, there is no way to export the gas to overseas countries. Originally, gas entrepreneurs had ambitious plans to export gas from Israel to the rest of the world, using tankers that transport liquid gas. Noble Energy (now Chevron), the American company that operates the Tamar and Whale gas reservoirs, planned to build a $ 10-15 billion gas leakage facility in Cyprus, in cooperation with the Australian company Woodside, which planned to acquire a 25% stake in the whale reservoir for $ 2.71 billion. However, officials in the National Security Council in Israel opposed the construction of a gas leak facility in an area outside Israeli control for “strategic” reasons (later it turned out that the opposition was due to foreign motives) and Woodside, who gave up on bureaucracy in the Israeli market, decided to cancel the deal.

Following the departure of Woodside, Delek Drilling, Noble’s Israeli partner controlled by Yitzhak Tshuva, took over the management of contacts for gas export transactions. The gas from Tamar and their companions has been flowing to Egypt and Jordan since the end of 2019 and is an important part of Israel’s geopolitical relations. The publications about Jordan’s offer to sell gas to Lebanon (originating from Israel) can put an ironic smile on the faces of those who have faced criticism of the gas layout. The outline was intended to bring about the development of the Whale Reservoir, but since its approval succeeded beyond expectations when it led to the introduction of competition in the gas economy, it was possible to export gas to countries in the region and contributed to a certain reduction in gas prices.

Benjamin Netanyahu and Yuval Steinitz deserve credit for approving the outline, but they were not involved in the decision to export gas to the countries of the region. Delek Drilling CEO Yossi Abu was the one who insisted on marketing the gas to customers in Egypt, even though most experts claimed that this was not economically feasible. Whale named Zohar.

What the markets did not understand was that the demand for gas in Egypt was growing at a faster rate than the growth rate of gas production from the reservoirs. Apparently, even today, when gas prices are at an all-time high and when it imports gas from Israel – the gas leakage facilities in Egypt operate only in a partial format, since Egypt does not have enough gas to export.

Israeli gas exports to Egypt are therefore expected to continue to grow from 2023, if Phase B of the development of the Whale Reservoir is approved. It is likely that gas prices in the world will return to sane levels by then, but all this should not interest the Israeli consumer. For him, what is important is that gas will continue to flow and that prices will continue to fall. This certainty is worth much more than just another temporary coupon.

 
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