WASHINGTON, Aug. 11 (UPI) -- Israel's lack of significant hydrocarbon reserves is forcing the country to form business agreements with several other nations -- including Middle Eastern countries with which it continues to clash -- for energy supplies. Even with Israel's recent offshore natural gas discovery, it is not enough to meet domestic energy demand. Israel currently purchases approximately 80 percent of its oil from Russia and the former Soviet republics, with the rest coming from Rotterdam and Egypt.
Israel signed an agreement with the United States in February 2000 in an attempt to diversify energy supplies, but still heavily relies on fossil fuels instead of branching out to other alternative energy resources. Oil currently accounts for approximately 67 percent of Israel's energy balance, coal makes up 30 percent and natural gas makes up less than 1 percent. Israel imported 279,000 barrels of oil per day in 2003.
In the past, Israel had more access to oil than it does now. With the onset and aftermath of the Iraqi war, the United States considered reviving the Mosul-Haifa pipeline, which has remained unused since the 1948 Israeli war. The pipeline links Iraq's northern oil fields to the city of Mosul, passing through Syria and Jordan on its way to the Israeli port city of Haifa. The pipeline would need massive financial investments for restoration. Moreover, when Israel annexed the Sinai oil fields in 1967, the country had a source of oil until the the Sinai peninsula was returned to Egypt under the Camp David Accords.
For the first quarter of 2004, when crude oil prices averaged $32 per barrel, profit for the company, Israel Oil Refineries, stood at $14.34 million with revenue increasing by 5 percent to $914.8 million. As of May, the price of OPEC oil stood at $22-28 per barrel.
Israel may be able to offset some of its spending on imported fuel by investing in energy infrastructure. The country is currently in talks to build a natural gas pipeline with Egypt. At the World Economic Forum conference in Jordan on May 4, Israel's Minister of National Infrastructures, Joseph Paritzky, met with Egypt's Minister of Petroleum Sameh Fahmi to discuss an Israel-Egypt natural gas deal. Israel Electric Corporation sought to purchase natural gas from Eastern Mediterranean Gas, which is owned by Israel's Joseph Maiman, Egypt's Hussein Salem and the Egypt National Gas Company. EMG requested that IEC provide a $180 million bank guarantee, despite the fact that EMG and the Egyptian government refuse to provide any financial guarantee at all, but provided only a written official commitment guaranteeing natural gas deliveries. Fahim told Paritzky that he favored Paritzky's proposal to construct a natural gas pipeline to carry gas to both Israel and the Palestinian Authority.
Israel also plans to help finance a pipeline and power station in Kazakhstan. Bateman Engineering Israel and one of Kazakhstan's largest private infrastructure companies announced on May 23 that the companies jointly intend to construct a $190 million 270-megawatt power station on the Kazakh shore of the Caspian Sea as part of the Kashgan oil fields development. The Kashgan oil fields have a reserve capacity of approximately 8 billion barrels. The power station project could expand to 320 megawatts. Italy's Agip will finance the project. Bateman is also bidding for other projects of similar scale in Kazakhstan. Bateman is also undertaking a feasibility study for upgrading Central Asia's main natural gas pipeline.
Israel's National Infrastructure Minister Joseph Paritzky visited Turkey on May 25 to discuss an energy corridor. Turkish Energy and Natural Resources Minister Hilmi Guler told Ankara Anatolia on May 25, "Israel wants to buy electricity, natural gas, oil and water from Turkey with a single project. Feasibility activities of this project continue at the moment and we will act accordingly with these feasibility activities."
Israel also plans other massive infrastructure projects over the next several years to develop its domestic gas market. In a meeting with Russia's Gazprom's Chairman Alexei Miller on June 1, Israeli Prime Minister Ariel Sharon emphasized Israel's interest in long-term contracts for gas supplies. Gazprom is interested in providing Russian gas shipments and the company's participation in creating gas infrastructure in Israel. By 2025, Israel plans to increase the share of gas in the energy balance from less than one percent to 25 percent. But in order to do so, the country must build gas pipelines, low-pressure grids, and new power plants that will use gas. The Israeli government wants Gazprom to design and build the gas grids.
Gazprom is exploring supplying Russian gas through Turkey utilizing the Blue Stream pipeline and building a new gas pipeline through the Mediterranean Sea. According to Gazprom CEO Aleksey Miller, the Blue Stream natural gas pipeline from Russia to Turkey is the most promising route to export Russian natural gas to Israel. Gazprom will also look into supplying liquefied or compressed gas. According to Gazprom's Head of Strategic Development Department Vlada Rusakova, the company will supply 7.85-10.46 billion cubic yards annually.
Gazprom and Israel have been discussing the project since 1998 when Israel only wanted 2.6-3.9 billion cubic yards of gas annually, making the venture unprofitable for Gazprom. According to Rusakova, the construction of a gas pipeline required tremendous investments. Given Israel's increase in desired gas supplies, Rusakova told Interfax on June 1, "This is interesting to us, at this level of supplies investment will be paid back." Israel projects gas consumption to increase as the energy sector grows. According to the Infrastructure Ministry, natural gas consumption will reach 15 billion cubic yards in 2025.
Israel's gas company PazGaz intends to acquire gas activities and companies in Eastern Europe for millions of dollars. This acquisition will make PazGaz the first Israeli company to enter the liquid petroleum gas market overseas. Paz Oil Company and brothers Ehud and Mordechai (Modi) Ben-Shach own PazGaz 50-50.
But in an interview with Globes on August 5, Ehud Ben-Shach said that though the Israeli energy market is ripe for such projects, its business environment still presents some hurdles.
"Israel has the business and intelligence density per square mile of few other countries. (But) if you add Israelis' aggressiveness and government over-regulation, it's no wonder that many companies are heading overseas. Under these circumstances and because the gas market has been quantitatively declining for years, PazGaz decided to move our know-how, experience, managerial capabilities and some of our investments overseas. We're now seeking gas infrastructure and marketing opportunities in Eastern Europe, especially in countries slated to join the Euro between 2007 and 2010."
