(1) The populists of the Israeli gas market, the very same cult that corrupted the public debate just to make a name for itself, doesn’t like to read or hear about it so I am volunteering to rub some more salt in its wounds: The gas outline achieved its goals and is seen as a great success. Gas prices fell at a significant rate, there is competition between the reservoirs, Leviathan has been developed, the local supply capacity has doubled, Karish and Tanin were sold to a new company and Delek Drilling sold its Tamar holding.

The decisions have been implemented, often before the deadline, and state revenues will indeed reach hundreds of billions of shekels. In addition to gas infrastructure, Israel’s fuel mix has undergone a complete change over the last decade: from imports of polluting coal and oil distillates to locally-produced natural gas that contributes to environmental quality, public health and state revenues.

None of the above is disputed and no spin can distort reality. This column, however, will not focus on the history but rather the future of the energy market in an attempt to prevent the populists cult from stopping the development of the gas market by blowing the “renewable energy” or “climate crisis” argument out of proportion.

I am writing this because I am certain this cult is capable of – or is already planning – a campaign that could halt the development of the gas market and cost us tens of billions. The politicians must not surrender to a small group of populists with positive media coverage. Unfortunately, many in the government support them.

(2) To understand what’s in store for the energy sector, I used a paper written by Gina Cohen and Miki Korner. I’ve known Cohen for many years, she is the number one expert in Israel on energy matters – and one of the best in the world. No journalist or populist disguised as a “social activist” comes even close to her knowledge of and insight into the Israeli and global energy markets.

Cohen recently prepared a 70-page report titled “Natural Gas in the Eastern Mediterranean: From Israel’s Gas Discoveries to Commercial Production and Regional Cooperation – Challenges and Opportunities.” I will go over the main findings in hopes that they don’t fall on deaf ears at the relevant government ministries.

Israel’s EEZ discoveries (Tamar, Leviathan, Karish-Tanin) contain an estimated 1,000 BCM, enabling extended supply to the local market (in 2020 the market consumed 12 BCM) as well as exports, largely to neighboring countries that are facing a gas shortage in the coming decades. This is why Israel established three separate production systems, a transmission system and partial distribution infrastructure. In the bottom line, only a fraction of the potential has been realized.

Tamar and Leviathan can produce 11 and 12 BCM a year, respectively. Karish is due to start operating in 2026 at a rate of 6-8 BCM  a year. The market’s self-sufficiency from Israeli reservoirs will stand at more than 30 BCM a year in 2022. Over the next 3-5 years, Israel will be able to meet the full local demands and exports with adequate redundancy, including an increase to +-10 BCM a year without an additional investment in infrastructure.

In the second half of the decade, Israeli gas supply is expected to grow at a sharp rate following, for example, an additional major export contract that will require expanding the existing reservoirs or developing new fields, as well as building an export pipeline and expanding the transmission system accordingly. The report notes that in addition to annual supply, Israel must also take into account the peak hourly and daily demands, which requires reserves or access to imported pipeline gas or LNG.

(3) So what is preventing the continued development of the gas reservoirs? We’ve arrived at the cult’s agenda: renewable energy. Amid the global public debate over the climate crisis, the government made several important decisions to increase the use of clean energy (namely solar) and curb pollutant emissions, including the unrealistic target of 30% renewables and 70% gas in 2030, which will require hundreds of additional solar facilities and transmission lines.

Gas is viewed in many countries as a “transition fuel” on the path to green energy. This concept of a narrow window of opportunity for gas use was reflected in a recently-published Knesset committee interim report following a review of the permissible export rates.

Several environmental activists are now opposed to producing additional gas on grounds that leaving it in the ground will speed up the shift to renewables. However, suspending gas production for the next 20 years (the minimal period the market requires to reach 50%+ renewables) while failing to meet the renewable targets could take us back years due to the need to resume the consumption of coal and oil. The report estimates that as far as benefits to the market, leaving the gas in the ground could result in a threefold loss: environmental, economic and geopolitical. In addition to connecting gas infrastructure, linking Israel’s grid to its neighbors will also benefit the countries of the region as electricity sales among them will allow for a better utilization of the infrastructure and improve the response to peak local demands and emergencies.

In other words, if we surrender to the cult we will lose more than we have gained.

(4) Formal electricity generation from renewable sources began in 2009 and grew significantly over the last three years, although it accounted for only 5.7% in 2020 compared with the target of 10%.

The 30% target for 2030 faces several challenges: solar facilities in Israel operate only 19% of the time regardless of demands, as opposed to gas-fired stations that are available 90% of the time and can be dispatched as required. The solar facilities’ biggest resource is land: considering their limited use, a solar station requires 400 times as much land as a gas-fired station.

Solar panel and lithium battery production, meanwhile, have been shown to cause severe pollution. And most importantly, solar electricity is more expensive even before calculating the costs of the additional infrastructure, backup, frequency stabilization and storage – largely because the shortage has encouraged solar on rooftops and in water reservoirs, which have triple the generation costs of large ground-mounted facilities. The PUA estimates that the direct cost of solar generation in 2021 will total 3.4 billion NIS, of which 1.7 billion NIS are excess costs which are usually shifted to consumers.

(5) The report’s conclusions are unequivocal: on one hand, gas use is coming under increasing pressure as governments worldwide take climate mitigation measures. In some countries, the economic considerations behind the construction and operation of new gas-fired stations are already a challenge. However, and this needs to be repeated, gas will remain a vital part of the global energy system for the next three decades at least. Technological developments could help reduce its harmful environmental impacts but the new uses and replacement of traditional fuels will likely create new demands for gas.

More importantly, the increase in gas demands has exceeds the growth in oil demands. Gas is now set to become the most wisely used fossil fuel in the world, after it already overtook coal. Cohen and Korner conclude that if there is a tragedy taking place today, it is the restriction of gas supply because climate activists place it in the same category as coal and oil.

The result will be a slowdown in curbing climate change in the absence of sufficient amounts of gas to replace coal. This trend will continue with a rise in energy prices or lack of energy security due to a shortage of supply sources. Despite the calls to stop gas exploration and development, new exploration projects are likely to continue in the foreseeable future. The transition to gas eases the replacement of coal and oil while serving as a future energy transmission system. In other words, the attempts to block the development of gas will only cause damage to consumers in the form of higher prices – and that is typical of this group: recall that the delays in Leviathan’s development last decade due to heavy regulation eventually held up the Sheshinski levy payments to the state.

Leviathan is due to sell at an annual rate of $2 billion over the coming years – and that’s before the expansion phase. Four years of delay are equivalent to roughly $1 billion from royalties alone.

(6) Chevron’s entry: The populist cult isn’t keen on big corporations and as expected began a campaign against Chevron after it replaced Noble in Tamar (25%) and Leviathan (40%). Cohen and Korner’s report points to the advantages of Chevron: for decades the state tried to draw international energy companies on Chevron’s scale to come to Israel – without success. Its arrival turned out to be simpler when it acquired another American company, a move that is expected to affect all energy and infrastructure sectors. The report even compares it to Intel’s entry to Israel in the 1970s, which had a crucial contribution to the development of the local high-tech industry.

The message this conveys is that one can invest and operate in Israel in the long term, as energy ventures requires, and that the Arab boycott is no longer effective. Chevron has the professional and financial capacity combined with a long-term regional strategy that might lead to projects that could not have been financed prior to its arrival. Furthermore, the company has significant operations in Egypt and international LNG activities, which could help secure new gas export contracts with Egypt, Jordan and Cyprus; connect Israel, Egypt and Jordan’s grids; expand exports from Leviathan by supplying gas to Egypt’s existing LNG plants or building an FLNG in Israel’s EEZ; increase cooperation with Cyprus, an EU member; and promote exports to Europe via the East Med pipeline.

The East Med project is currently in the process of a feasibility study and is budgeted by several European organizations and countries (as well as the government of Israel). Chevron can better deal with Turkey’s attempts to prevent the pipeline and exploration projects in Cyprus. Cohen and Korner write that there are concerns about possible negative influences, such as difficulties in the government to protect the public interest vis-à-vis too large and powerful a company (referring to the cult). They note that the best and most effective path forward for all parties is to honor the agreements that create a stable regulatory environment and ensure the state’s support for multinational high-cost project that contribute to multiple countries and companies in the East Med.

So dear government, don’t put a spoke in the wheels of the gas market. We have the potential to generate massive revenues that will benefit the public, so why bury it at sea for the sake of a populist cult?