Israel Energy Information
Israel currently faces significant challenges,
particularly political, although the country's economy had (prior to
the current Palestinian-Israeli clashes) been improving, and seemed
set for solid growth in coming years. Besides a booming
high-technology sector, Israel had undertaken important structural
reforms (such as privatization and reduced controls on foreign
currency exchanges and profit remittances by foreign companies), and
apparent progress in peace negotiations was helping to attract
tourists and foreign investment (up 63% in the first half of 2000
over the same period in 1999). Overall, Israel's real economic growth
had been expected to reach 3.9% in 2000, up from 2.2% in 1998,
although still down from a 6% annual average between 1990 and 1995.
Now, however, Israel's economic (and political) prospects are more
murky, and largely dependent upon progress in the "peace
process." Consumer price inflation is averaging around 2.3%,
with unemployment around 9%. The country's budget deficit has
declined to an estimated 1.5% of GDP this year.
Over the last decade, Israel has made some
progress in the direction of a more open, competitive,
market-oriented economy, although public spending still accounts for
more than half of the country's GDP and the top marginal income tax
rates exceed 60%. Israel continues to make moves (although haltingly)
towards privatizing government-owned companies, including the Ports
and Railways Authority, the Oil Refineries Company, and others. Tax
reforms and cuts are a possibility, although they are opposed by the Histadrut,
Israel's trade union federation and a traditional power base of the Labor
Party. In general, supporters of economic liberalization believe
that Israel's economy is strong enough to compete globally. Both
privatization and spending cuts are opposed by the Histadrut
Israel's trade deficit is projected to fall to
around $4 billion in 2000, from more than $6 billion in 1999. Israel
has been working to reduce its trade deficit by increasing its
exports. Over the long term, Israel's export sector, led by
high-technology (which has accounted for roughly 75% of Israel's
export growth in recent years), is expected to grow strongly.
In late September 2000, serious violence erupted
between Israelis and Palestinians. The violence, which continues as
of late October, is the most serious in years, and has prompted
serious concerns for the future of the "peace
process," as well as for the Middle East region in general.
Until recently, with a significant offshore
natural gas discovery, Israel has had essentially no commercial
fossil fuel resources of its own, and has been forced to depend
almost exclusively on imports to meet its energy needs. Israel has
attempted to diversify its supply sources and to utilize alternatives
like solar and wind energy. Traditionally, Israel has relied on
expensive, long-term contracts with nations like Mexico (oil), Norway
(oil), the United Kingdom (oil), Australia (coal), South Africa
(coal), and Colombia (coal) for its energy supplies. Israel also has
pursued other, cheaper sources of energy, like Egyptian gas. In
November 1998, then- National Infrastructure Minister Ariel
Sharon said that the major decision on Israel's energy supply for
the 21st century had been delayed by 1 year. This was to allow
further time to secure a supply source for natural gas, Israel's
preferred fuel for several reasons (including environmental and
financial), as opposed to coal. Israel hopes to significantly expand
(to 25%) natural gas in its energy mix by 2005.
Although the Israeli government in principle
favors privatization of state-owned companies, the energy sector
remains largely nationalized and state-regulated, ostensibly for
national security reasons. In fact, little progress on energy sector
privatization has been made since the late 1980s, when Paz Oil
Company (the largest of three main oil-marketing companies in Israel)
and Naphtha Israel Petroleum (an oil and gas exploration firm) were
sold to private investors. Meanwhile, other energy companies such as
the Oil Refineries Company, which operates Israel's two refineries
and Ashdod), and the Oil
Products Pipeline Company, which operates Israel's oil pipelines,
remain state-owned, with no definite plans to privatize them in the
near future (although the current Israeli government appears to favor
such privatization, at least in principle). In early 1996, the Israel
Electric Company's (IEC)'s monopoly was extended for another 10
years, with private producers permitted to supply 10% of Israel's
electricity demand by 2000.
In February 2000, Israel and the United States
signed an energy cooperation agreement. The agreement includes
cooperation in the fields of gas, coal, solar power technology, and
electric power generation. In addition, US Energy Secretary Bill
Richardson signed a letter of intent with Israel's Atomic Energy
Commission to expand cooperation on nuclear non-proliferation and
arms control issues.
Israel produces almost no oil and imports nearly
all its oil needs (major sources traditionally have included Egypt,
the North Sea, West Africa, and Mexico). In September 2000, Israeli
truck drivers staged a "go-slow" in response to rising fuel
prices, caused mainly by higher world oil prices (although diesel in
Israel remains far less expensive than in Europe, where far more
serious protests have occurred recently).
Although oil exploration in Israel has not proven
successful in the past (current output is less than 1,000 barrels per
day), drilling is being stepped up. Israel's Petroleum Commission has
estimated that the country could contain 5 billion barrels of oil
reserves, most likely located underneath gas reserves, and that
offshore gas potentially could supply Israel's short-term energy
needs. Geologically, Israel appears to be connected to the oil-rich
Paleozoic petroleum system stretching from Saudi
Arabia through Iraq to Syria.
Overall, around 410 oil wells have been drilled in
Israel since the 1940s, with little success. In early 1998, the Jerusalem
Post reported that several Israeli oil companies intended to
explore for oil in waters offshore Israel's coast, and several
foreign oil companies have expressed interest recently in this area.
In late September 2000, for instance, a contract was signed between
U.S.-based Ness Energy International and Lapidoth Israel Oil
Prospectors Corp. to commence further work on the Har Sedom 1 well.
In 1994, Enserch Corp. of Dallas signed an agreement with two Israeli
companies to examine a 1,500 square mile area on the Mediterranean
coast. In another development, Isramco (a private company which
absorbed the Israel National Oil Company when it was privatized in
1997), Delek, and Naphtha Israel Petroleum Corp. are partners in the
Gevim 1 oil well being drilled near Sderot in the Negev desert.
Isramco has stated that it is optimistic that the Gevim field will
yield significant amounts of oil. Meanwhile, oil was discovered near
the Dead Sea town of Arad in August 1996, and is currently flowing at
the rate of about 600 barrels per day.
A contract for construction of the 100,000-bbl/d,
Egyptian-Israeli joint venture MIDOR (Middle East Oil Refinery Ltd.)
refinery in Alexandria entered into effect in July 1997. The
ultra-modern, environmentally-advanced facility is expected to cost
about $1.3 billion and will include a 25,000-bbl/d hydrocracker. The
original plan was for the facility to be mainly export oriented, with
only 20% of production sold in Egypt, but recent reports indicate
plans for 50% or more of the products to be sold locally. The project
represents the largest Arab-Israeli joint venture to date. In January
1997, EGPC acquired an additional 20% equity from Israel's Merhav and
from the local Hussein K. Salem Group to push its share in the
venture to 60%. Each of the private investors retains a 20% share in
the project. Spain's Repsol is set to manage the plant when it comes
online in 2001.
Although Israel itself produces almost no oil, a
comprehensive settlement of the Arab-Israeli
conflict could affect Middle East oil flows significantly.
Israel's geographic location between the Arabian peninsula and the
Mediterranean Sea offers the potential for an alternative oil export
route for Persian Gulf oil to the West. At present, these oil exports
must travel either by ship (through the Suez Canal or around the cape
of Africa), by pipeline from Iraq to
Turkey (capacity 1-1.2 MMBD), or via the Sumed (Suez-Mediterranean)
Pipeline (capacity 2.5 MMBD). Utilization of the Trans-Arabian
Pipeline (Tapline) could offer another potentially economic
alternative. The Tapline was originally constructed in the 1940s with
a capacity of 500,000 bbl/d, and intended as the main means of
exporting Saudi oil to the West (via Jordan
to the port of Haifa,
then part of Palestine, now a major Israeli port city). The
establishment of the state of Israel resulted in diversion of the
Tapline's terminus from Haifa
to Sidon, Lebanon (through Syria
and Lebanon). Partly as a result of turmoil in Lebanon, and partly
for economic reasons, oil exports via the Tapline were halted in
1975. In 1983, the Tapline's Lebanese section was closed altogether.
Since then, the Tapline has been used exclusively to supply oil to
Jordan, although Saudi Arabia
terminated this arrangement to display displeasure with perceived
Jordanian support for Iraq in the 1990/1 Gulf War. Despite these
problems, the Tapline remains an attractive export route for Persian
Gulf oil exports to Europe and the United States. At least one
analysis indicates that oil exports via the Tapline through Haifa to
Europe would cost as much as 40% less than shipping by tanker through
the Suez Canal.
Israel hopes to increase the share of natural gas
in its fuel mix (especially for electricity generation, currently
dominated by coal-fired plants) for energy security, economic, and
environmental reasons, and has been looking at various options in
recent years. One possibility is gas imports from Egypt's
Nile Delta region, either overland across the Sinai peninsula, or
via underwater pipeline to the Israeli coast. Another strong
possibility, which has arisen only in the past year or so, is using
Israel's own, newly-discovered offshore gas resources.
As far as Egyptian gas is concerned, much depends
on regional politics, but ENI, a major gas producer in Egypt,
is nearly through construction on a $150-million gas pipeline from
offshore fields north of Port Said, Egypt through the Sinai to El-Arish,
near the border with the Gaza Strip,
and only about 30 miles from Israel. Using Egyptian gas for power
generation in the Palestinian Authority
reportedly would cost 3.5 cents per kilowatt-hour, about half the
price charged by the IEC. Currently, Gaza is almost totally dependent
on the IEC for its electricity needs.
Over the past year, in an important discovery for
a country which has never had significant domestic energy resources,
several energy companies (Israel's Yam Thetis group, Isramco, BG --
formerly British Gas, and U.S.-based Samedan) have discovered
significant amounts of natural gas off the coast of Israel (and the Gaza
Strip as well). Israel's petroleum commissioner, Yehezkel
Druckman, estimates 3-5 trillion cubic feet (Tcf) in proven reserves,
enough potentially to supply Israeli demand for years, even without
gas imports. In fact, there are signs that the Israeli government may
be backing off Egyptian gas imports in favor of its own gas supplies
(although Egyptian gas, at least as part of the supply mix, has not
been ruled out). Yam Thetis, for one, appears to be lobbying against
Egyptian gas. Further complicating matters, gas has been discovered
not only on Israel's side of the border, but also in areas that
appear to straddle Palestinian and Israeli waters, as well as in
areas that appear to lie in Palestinian territory.
Israel's new offshore gas reserves belong mainly
to two groups: 1) the Yam Thetis group, which includes Israel's Delek
Drilling and Avner Oil; as well as Samedan and Reading & Bates;
and 2) a BG partnership with Isramco and others. In August, Isramco
announced that it had discovered a large gas field 12 miles offshore
at its Nir-1 well. The field reportedly contains gas worth more than
$1 billion, and represents the third gas field discovered offshore
Israel during 2000. Palestinian offshore gas is being developed by
BG. Several groups reportedly are competing to supply gas to the IEC,
including Yam Thetis and BG/Isramco, plus local group Sdot Yam and
the East Mediterranean Gas joint venture (between Merhav, Egyptian
General Petroleum Corp., and Egyptian businessman Hussain Salem).
In October 1999, BG had bought 50% of Isramco's drilling rights. In early November 1999, BG, Isramco, and four other Israeli partners began drilling for gas at the offshore Or South site, near another well (Or-1) in the Med Yavne concession where gas was discovered (by BG) a week earlier and which tested at 21 million cubic feet per day of high-quality dry gas. Samedan (which in October 2000 reportedly purchased half of Mediterranean Ltd.'s share of the offshore Israel gas territory) has stated that its Noa offshore gas field could contain as much as 330 Bcf of natural gas. In a related development, in late December 1999, Dow Jones reported that Israeli officials would not challenge Palestinian plans to drill for gas off the neighboring Gaza Strip. BG has signed a 25-year contract to explore for gas and set up a gas network in the Palestinian Authority.
Israel meets approximately 25% of its energy
demand requirements from coal (primarily for electric power
generation). The National Coal Supply Corporation (NCSC) is the
majority government-owned (74%) company solely responsible for
securing the country's coal imports, and reportedly is a candidate
for privatization (or sale to the IEC, which currently owns 26% of
NCSC). Israel's coal supplies are all imported -- generally about
half from South Africa, with the rest from Colombia, the United
States, Australia, Indonesia, and Poland.
In March 2000, officials of NCSC announced plans to increase imports
of coal from Australia in 2000.
Overall, Israel imports around 10 million short
tons (mmst) of coal. Growth in coal demand (and imports) is being
driven mainly by rapid growth in electricity demand. With the
expansion of Israel's fourth coal-fired power plant (at Ashkelon)
in coming months, Israeli coal imports could rise to over 11.5 mmst
per year by 2002. A new coal terminal will handle coal imports to
Israel's two coal-fired power plants in Ashkelon.
According to the IEC (Israel's monopoly national
utility), Israel had about 8.6 gigawatts (GW) of installed electric
generating capacity (at 29 power stations, including 6 major thermal
plants) as of 1999, with 70% accounted for by coal-fired plants, 25%
by fuel oil-fired units, and the remainder by gasoil and independent
power producers (IPPs). Israel also is a world leader in solar
technology and relies heavily on solar energy for water heating.
Israel's power demand is increasing rapidly (approximately doubling
every 10 years), and the IEC estimates that growing power demand will
require an increase in production capacity to over 10 GW by 2002. By
2010, IEC foresees installed generating capacity reaching 14.3 GW. To
meet this increased demand, IEC is aiming to raise $1.2-$1.3 billion
a year in financing for generation, transmission, and distribution
systems. The IEC is converting its oil and diesel-fired generators to
gas, and hopes to generate 25% of its electricity from gas by 2005.
The source of the gas most likely will be either via pipeline from
Egypt or from Israel's own offshore gas reserves.
Israel's fourth coal plant, an 1,100-megawatt
facility at the Mediterranean Sea port of Ashkelon,
was inaugurated on June 29, 2000, and was the first power plant in
Israel to have sophisticated anti-pollution scrubbers (Israel intends
to install scrubbers at its two coal-fired plants in Hadera as well).
Israel also is considering construction of a fifth coal-fired plant,
but as of late 2000 a decision had not been made by the
Infrastructure Ministry, which also is considering natural gas. If
approved, the plant could go into service in 2006. Meanwhile,
construction has started on a coal unloading pier at Ashkelon to
handle 200,000-metric-ton vessels. This should lead to savings of $13
million per year in transport costs. Currently, coal is shipped to
another port, Ashdod, unloaded, and sent by rail to Ashkelon. The IEC
transmission grid is a closed loop system connecting power stations
to major load centers throughout Israel and to the Palestinian
Authority. The grid covers 1,645 miles.
Besides coal and oil, future sources of electric
generating capacity may include natural gas supplies, from Egypt
and/or from gas recently discovered offshore Israel and Gaza (see
above). Natural gas would serve at least three goals: increased
diversity in energy sources; benefits to the environment; and
reductions in IEC's electric generation costs. As of mid-2000, IEC
reportedly was studying proposals from four groups (EMG, Yam Thetis,
BG International, and Sdot Yam) for the supply of 250 million cubic
feet per day (mmcf/d) to its power plants. Israel also is looking at
other indigenous options, including oil shale from Nahal Zin in the
Dead Sea region and renewables (particularly solar power).
At the present time, nuclear power is not
considered an option for at least 20 years (although Israel already
operates a nuclear reactor at Dimona, in the Negev Desert 25 miles
west of the Jordanian border, as well as a smaller research reactor
at Nahal Sorek south of Tel Aviv).
As part of an effort to increase privatization of the country's power sector, Israel's Ministry of Energy has directed IEC to purchase at least 900 MW of power from IPPs by the year 2005 (of which possibly 150 MW are expected to come from solar and wind facilities, with the rest mainly natural gas-fueled). Israel's goal is for 10% of all electricity to be produced by IPPs. In June 1997, IEC announced the first tender for a large-scale private power plant in Israel -- a 370 megawatt, dual-fired, combined-cycle plant to be built at Ramat Hovav (by a consortium of PSEG Global and the Ofer Group) in the Negev Desert by 2002. In July 1998, the first IPP tender issued by the IEC was awarded. A second and third IPP are possible, including the 400-MW, gas-fired Alon Tavor power plant in northern Israel.
One area of potential regional cooperation
involves integration of individual national power transmission grids
into a regional power network. Such a network would, among other
benefits, allow power companies to take advantage of differences in
peak demand periods, reduce the need for (and the costs associated
with) installation and maintenance of reserve generating capacity,
and provide outlets for surplus generating capacity (mainly from
Israel to Jordan). Israel and Jordan held talks in October 1999
regarding possible cooperation on a shale-oil-fired plant as
stipulated in the two countries' peace treaty. The two countries also
have talked about linking their power grids and have discussed
several proposed joint power stations, including a $1-billion,
1,000-MW plant to be located on the two countries' border, a 100-MW
wind farm, a 150-MW solar thermal plant in the southern Arava desert
near Eilat, and an 800-MW plant in
Jordan that would supply power to Israel. In addition, IEC has
developed plans for potential joint wind power development with Syria
in the Golan Heights region
should a peace treaty be signed. IEC estimates that up to 10% of
future electric supplies could come from outside the country.
IEC plans to spend about $1 billion over the next
ten years to help reduce emissions from its power plants. New coal
plants are to be equipped with flue gas desulphurization and
combustion systems, and most of IEC's existing gas turbines have been
retrofitted with low nitrogen combustion systems. Most of the coal
ash waste produced by IEC's three coal-fired power plants is sold to
the cement industry.
In July 2000, Israel experienced a heat wave which
drove electric power demand to record high levels, and strained the
country's generating capacity. IEC called for speeding up
construction of private power plants (the first major private plant
currently is not scheduled to begin operations until 2004).
Sources for this report include: AP Worldstream; Agence France Presse; BBC Summary of World Broadcasts; CIA World Factbook 2000; Coal Week International; Dow Jones News Wire service; Economist Intelligence Unit ViewsWire; Financial Times; Global Power Report; Hart's Africa Oil and Gas; International Herald Tribune; Jerusalem Post; Middle East Economic Digest; New York Times; Oil and Gas Journal; Petroleum Intelligence Weekly; PR Newswire; U.S. Energy Information Administration; WEFA Middle East Economic Outlook.
Currency: New Israeli Shekel (NIS)
Infrastructure Minister: Avraham
Minister of Environment: Dalia
* The total energy consumption statistic includes
petroleum, dry natural gas, coal, net hydro, nuclear, geothermal,
solar and wind electric power. The renewable energy consumption
statistic is based on International Energy Agency (IEA) data and
includes hydropower, solar, wind, tide, geothermal, solid biomass and
animal products, biomass gas and liquids, industrial and municipal
wastes. Sectoral shares of energy consumption and carbon emissions
are also based on IEA data.
Organization: Israel National Oil Co.
Ltd. - Stateowned company, responsible for exploration and
production; Oil Refineries Limited - Part privatized, runs
Israel's 2 refineries at Haifa and Ashdod; Paz Oil, Delek, and
Sonol - Israel's three largest oil retailers; National Coal
Supply Corporation - government-owned company responsible for
Israel's coal supply; Israel Electric Corporation Ltd. - state
company responsible for Israel's electric power supply.