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Viewing cable 06TELAVIV4703, ISRAEL SEEKS TO DIVERSIFY ITS ENERGY SUPPLY TO

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Reference ID Created Released Classification Origin
06TELAVIV4703 2006-12-01 15:05 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Tel Aviv
VZCZCXYZ0027
RR RUEHWEB

DE RUEHTVA #4703 3351505
ZNR UUUUU ZZH ZUI RUEWMCF9133 3351503
R 011505Z DEC 06
FM AMEMBASSY TEL AVIV
TO RUEHC/SECSTATE WASHDC0000
INFO ARAB ISRAELI COLLECTIVE
RUEHTA/AMEMBASSY ALMATY
RUEHAK/AMEMBASSY ANKARA
RUEHKB/AMEMBASSY BAKU
RUEHBR/AMEMBASSY BRASILIA
RUEHMO/AMEMBASSY MOSCOW
RUEHSI/AMEMBASSY TBILISI
RUCPDOC/USDOC WASHDC
RHEBAAA/USDOE WASHDC
UNCLAS TEL AVIV 004703 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG PREL EPET PGOV ETRD IS
SUBJECT: ISRAEL SEEKS TO DIVERSIFY ITS ENERGY SUPPLY TO 
MEET GROWING DEMAND 
 
 
SENSITIVE BUT UNCLASSIFIED -- PLEASE HANDLE ACCORDINGLY. 
 
1. (SBU) SUMMARY: IN ORDER TO MEET THE ENERGY DEMANDS OF A 
GROWING POPULATION AND A RISING STANDARD OF LIVING, ISRAEL 
WILL NEED TO DOUBLE ITS GENERATING CAPACITY OVER THE NEXT 
DECADE.  IN AN EFFORT TO REDUCE ITS HEAVY DEPENDENCE ON 
IMPORTED OIL -- 90 PERCENT OF WHICH COMES FROM RUSSIA AND THE 
FORMER SOVIET UNION -- THE GOI IS DEVELOPING A STRATEGY THAT 
INVOLVES SHIFTING TO NATURAL GAS AND RENEWABLE ENERGY AS WELL 
AS PROMOTING ISRAEL AS AN ENERGY TRANSIT STATE.   ALTHOUGH 
DISCOVERIES OF OFFSHORE NATURAL GAS RESERVES ARE PROMISING, 
THE ISRAEL ELECTRIC CORPORATION (IEC) ENJOYS DISCOUNTED GAS 
AND STILL RETAINS A VIRTUAL MONOPOLY ON THE NATURAL GAS 
INDUSTRY, WHICH HAS STIFLED COMPETITION AND DISCOURAGED 
INTERNATIONAL INVESTMENT IN ISRAEL'S NATURAL GAS MARKET. 
HOWEVER, IN AN EFFORT TO BOOST COMPETITION AND STAVE OFF A 
POTENTIAL ENERGY SHORTAGE, THE MINISTRY OF NATIONAL 
INFRASTRUCTURE (MONI) IS CONSIDERING ESTABLISHING A 
GOVERNMENT COMPANY THAT WOULD PURCHASE NATURAL GAS FOR THE 
ENTIRE POWER SECTOR.  WHILE MANY IN THE ISRAELI PRIVATE 
SECTOR BELIEVE THE MOVE MIGHT REIGN IN THE IEC, THE MINISTRY 
OF FINANCE OPPOSES SUCH GOVERNMENT INVOLVEMENT, AND SEES IT 
AS A SHORTSIGHTED SOLUTION THAT WOULD DO MORE HARM THAN GOOD. 
 IT IS UNCLEAR WHETHER THE GOI WILL ULTIMATELY IMPLEMENT THIS 
PLAN. A MORE CERTAIN STRATEGY FOR ISRAEL TO EXPAND AND 
DIVERSIFY ITS ENERGY SUPPLY WILL INVOLVE ITS PARTICIPATION IN 
INTERNATIONAL PIPELINE PROJECTS.  END SUMMARY. 
 
--------------------------- 
MORE POWER, LESS DEPENDENCY 
--------------------------- 
 
2. (U) ACCORDING TO NATIONAL FORECASTS, ISRAEL WILL NEED TO 
DOUBLE ITS GENERATING CAPACITY FROM SOME 10,000 MEGAWATTS 
(MW) TO 20,000 MW OVER THE NEXT DECADE IN ORDER TO SUPPLY A 
GROWING POPULATION ENJOYING A RISING STANDARD OF LIVING. 
ISRAEL'S ENERGY ECONOMY HAS BEEN BASED ALMOST ENTIRELY ON 
IMPORTED FOSSIL FUELS, MAINLY CRUDE OIL; HOWEVER, ISRAEL'S 
MINISTRY OF NATIONAL INFRASTRUCTURE IS DEVELOPING A STRATEGY 
TO REDUCE ITS DEPENDENCE ON FOREIGN OIL AND DIVERSIFY THE 
TYPES AND SOURCES OF ENERGY IT EXPECTS TO USE IN ORDER TO 
MEET FUTURE DEMAND. 
 
3. (SBU) OMAR SELAH OF THE MONI FUEL AUTHORITY TOLD ECONOFF 
THAT ISRAEL IS "AN ISLAND ON ITS OWN" IN TERMS OF ENERGY 
INFRASTRUCTURE, AND NOTED THAT ISRAEL BUYS 90 PERCENT OF ITS 
OIL FROM RUSSIA AND COUNTRIES OF THE FORMER SOVIET UNION.  HE 
POINTED TO THE RECENT POLITICAL INSTABILITY IN THAT REGION, 
SUCH AS THE TENSION BETWEEN RUSSIA AND GEORGIA, AS WELL AS 
THE SIGNIFICANT PERCENTAGE OF THE WORLD'S OIL RESERVES 
POSSESSED BY "UNFRIENDLY" COUNTRIES LIKE IRAN, IRAQ, AND 
VENEZUELA TO UNDERSCORE THE GOI VIEW THAT HEAVY DEPENDENCE ON 
A FEW SUPPLIERS OF FOREIGN OIL IS "RISKY." 
 
----------------------------------------- 
NATURAL GAS COULD BE A NATURAL CHOICE ... 
----------------------------------------- 
 
4. (SBU) THE GOI STRATEGY INCLUDES LOOKING TO NATURAL GAS AS 
AN ALTERNATIVE TO IMPORTED OIL.  MONI EXPERTS HOPE THAT IN 
THE NEAR FUTURE HEAVY INDUSTRIAL PLANTS WILL SWITCH FROM THE 
USE OF FUEL OIL AND OTHER DERIVATIVES OF CRUDE OIL TO NATURAL 
GAS, AND FORECAST THAT ISRAELS NATURAL GAS DEMAND WILL 
SIGNIFICANTLY INCREASE TO 200 BILLION CUBIC FEET (BCF) BY 
2010 AND 434.4 BCF BY 2025, WHEN IT IS HOPED THAT NATURAL GAS 
WILL ACCOUNT FOR ONE-FOURTH OF ISRAEL'S TOTAL ENERGY 
CONSUMPTION. 
 
5. (SBU) PROVEN NATURAL GAS RESERVES OFF THE SHORES OF ISRAEL 
AND GAZA HAVE BEEN ESTIMATED AT JUST OVER 1.5 TRILLION CUBIC 
FEET.  CURRENTLY, THE ONLY MAJOR DOMESTIC SUPPLY OF NATURAL 
GAS COMES FROM AN OFFSHORE SITE NEAR ASHKELON OPERATED BY YAM 
THETYS, A U.S.-ISRAELI GROUP LED BY HOUSTON-BASED NOBLE 
ENERGY'S SUBSIDIARY, SAMEDAN.  JACOB KATZ, GENERAL MANAGER OF 
DELEK ENERGY SYSTEMS, WHICH ALSO HAS A STAKE IN THE PROJECT, 
TOLD ECONOFF THAT THE SITE HAS TOTAL PROVEN RESERVES OF 1.13 
TRILLION CUBIC FEET OF NATURAL GAS AND HAS AN 11-YEAR US 
$1.65 BILLION SUPPLY CONTRACT WITH THE ISRAEL ELECTRIC 
CORPORATION (IEC).  IN ORDER TO MEET ITS ANTICIPATED STEEP 
RISE IN DEMAND, IN AUGUST 2005 ISRAEL SIGNED A 15-YEAR 
AGREEMENT WORTH US $2.5 BILLION WITH EASTERN MEDITERRANEAN 
GAS (EMG), AN EGYPTIAN-ISRAELI CONSORTIUM, WHICH WILL ENABLE 
 
 
ISRAEL TO PURCHASE 60 BCF OF NATURAL GAS ANNUALLY AT A 
LOCKED-IN PRICE OF US $2.75 PER MILLION BRITISH THERMAL UNITS 
(BTU) TO BE USED BY IEC.  (NOTE: ALTHOUGH NATURAL GAS 
RESERVES HAVE BEEN DISCOVERED OFF THE COAST OF GAZA, BRITISH 
GAS (BG) AND ITS PALESTINIAN PARTNERS OWN THE LICENSE, AND 
ONGOING GOI EFFORTS TO ACQUIRE NATURAL GAS FROM BG HAVE NOT 
COME TO FRUITION.  MONI OFFICIALS ADMIT THAT EVEN IF BG 
SUPPLIES GAS TO ISRAEL, A SHORTAGE IS LIABLE TO DEVELOP AS 
SOON AS 2018.   END NOTE.) 
 
--------------------------------------------- ------ 
... IF THERE IS ENOUGH GAS AND A FUNCTIONING MARKET 
--------------------------------------------- ------ 
 
6. (SBU) EXPERTS CONSIDER THE ISRAELI NATURAL GAS MARKET A 
"FAILURE" DUE TO THE SMALL NUMBER OF SUPPLIERS.  FOR MANY 
YEARS IEC HAS BEEN THE COUNTRY'S SOLE SUPPLIER OF 
ELECTRICITY, AND ALTHOUGH THE GOI RECENTLY OPENED THE MARKET 
TO INDEPENDENT POWER PRODUCERS (IPPS), ELECTRICITY IS STILL 
MAINLY CONTROLLED BY IEC.  HEZI KUGLER, THE DIRECTOR GENERAL 
OF THE MONI, BELIEVES THAT EXPANDING SOURCES OF NATURAL GAS 
SUPPLY IN THE LONG TERM WILL ENABLE PRIVATE PRODUCERS TO 
ESTABLISH POWER STATIONS, GENERATE ELECTRICITY, AND 
POTENTIALLY STAVE OFF AN ENERGY SHORTAGE.  THE GOI SUPPORTS A 
POLICY OF PRIVATIZATION OF GOVERNMENT BODIES AND AIMS TO 
ALLOCATE UP TO 20 PERCENT OF THE IECS GENERATION CAPACITY TO 
IPPS.  TEN COMPANIES IN ISRAEL HAVE PLANS TO BUILD PRIVATE 
POWER PLANTS, THE LARGEST OF WHICH IS A US $500 MILLION, 800 
MW FACILITY BEING CONSTRUCTED BY DORAD ENERGY. 
 
7. (SBU) ISRAEL'S ELECTRICITY MARKET ALSO FACES A POTENTIAL 
SHORTAGE BECAUSE OF RISING PRICES FOR NATURAL GAS, AND 
BECAUSE PRIVATE ELECTRICITY PRODUCERS CANNOT COMPETE AGAINST 
IEC'S GUARANTEED PRICE OF US $2.75 PER MILLION BTU. 
POTENTIAL PRIVATE SECTOR ELECTRICITY PRODUCERS FACE A MARKET 
PRICE OF ABOUT US $4 PER MILLION BTU, MAKING IT UNECONOMICAL 
FOR THEM TO BUILD POWER PLANTS TO COMPETE WITH IEC. 
 
8. (SBU) IN AN EFFORT TO HELP PRIVATE ISRAELI COMPANIES 
COMPETE WITH IEC, THE MONI HAS ADVOCATED ESTABLISHING A 
GOVERNMENT COMPANY THAT WOULD PURCHASE NATURAL GAS FOR THE 
ENTIRE SECTOR.  SUCH A MOVE, MONI OFFICIALS BELIEVE, WILL 
ENCOURAGE THE ENTRY OF ADDITIONAL PRIVATE SUPPLIERS, FOSTER 
GREATER COMPETITION, AND HENCE LEAD TO BETTER PRICES FOR 
CONSUMERS BECAUSE THE GOI WOULD BRING PURCHASING POWER AND 
STATE GUARANTEES TO THE TABLE.  HOWEVER, THE MINISTRY OF 
FINANCE OPPOSES GOVERNMENT INVOLVEMENT IN THE NATURAL GAS 
SECTOR, AND BELIEVES THE MOVE IS A SHORTSIGHTED SOLUTION THAT 
WOULD HARM COMPETITION IN THE LONG-TERM.  AS THE DEBATE 
WITHIN THE GOI CONTINUES, IT IS UNCLEAR WHETHER THIS 
INITIATIVE WILL PROCEED.  AMIT MOR, CEO OF ECOENERGY ISRAEL, 
AN ECONOMIC CONSULTING FIRM, TOLD ECONOFF THAT MANY PRIVATE 
SECTOR FIRMS SEE THE IEC AS "INEFFICIENT," AND WOULD LIKE TO 
SEE THE "IEC MONOPOLY" BROKEN UP.  HE CAUTIONED THAT THE GOI 
HAS SUFFERED FROM A LACK OF FORESIGHT IN ITS LONG-TERM ENERGY 
PLANNING, NOTING, FOR EXAMPLE, THAT THE CONSTANT TURNOVER AT 
THE MONI -- THERE HAVE BEEN 13 DIFFERENT MINISTERS SINCE ITS 
INCEPTION -- HAS COMPLICATED EFFORTS. 
 
---------------------------------------- 
ISRAELS ROLE AS AN ENERGY TRANSIT STATE 
---------------------------------------- 
 
9. (U) MONI MINISTER BINYAMIN (FOUAD) BEN-ELIEZER SAID DURING 
A RECENT CONFERENCE ON ENERGY TRANSIT AT HAIFA UNIVERSITY'S 
NEW CENTER FOR ADVANCED ENERGY STUDIES THAT THE ACADEMIC AND 
PRIVATE SECTORS HAVE ALSO BEGUN TO CONSIDER ISRAELS ROLE AS 
A TRANSIT STATE TO BE AN IMPORTANT COMPONENT OF ITS LONG-TERM 
ENERGY SECURITY.  BEN-ELIEZER SAID THAT INTERNATIONAL 
PIPELINE PROJECTS COULD TRANSIT ISRAEL AND ALLOW IT TO 
PROMOTE REGIONAL COOPERATION, GENERATE INCOME, AND BENEFIT 
FROM NEW SOURCES OF OIL AND NATURAL GAS. 
 
10. (U) KAZAKH OIL AND AZERI NATURAL GAS ARE TWO SUCH 
ALTERNATE SOURCES OF FUEL.  KARIM MASSIMOV, DEPUTY PRIME 
MINISTER OF KAZAKHSTAN, HIGHLIGHTED DURING THE SAME 
CONFERENCE THAT KAZAKHSTAN HAS ALREADY HELD TALKS WITH ISRAEL 
ON CONNECTING IT TO THE BAKU-TBILISI-CEYHAN (BTC) PIPELINE. 
THIS WOULD GIVE ISRAEL THE ABILITY TO IMPORT NATURAL GAS FROM 
AZERBAIJAN AND OIL FROM KAZAKHSTAN, WHICH LOOKS TO INCREASE 
ITS ANNUAL OIL PRODUCTION CAPABILITY TO 3.5 MILLION BARRELS 
OF OIL BY THE YEAR 2015. 
 
 
 
11. (U) EGYPT AND TURKEY ARE ALSO PROMISING POSSIBILITIES, 
ACCORDING TO BEN-ELIEZER, BECAUSE EGYPT MIGHT JOIN A 
600-KILOMETER PIPELINE PROJECT DESIGNED TO TRANSPORT RUSSIAN 
AND CASPIAN NATURAL GAS FROM SAMSUN AND CEYHAN IN TURKEY TO 
HAIFA.  A PORTION OF THIS GAS WOULD GO TOWARD MEETING 
ISRAEL'S NEEDS, AND THE REMAINDER WOULD FLOW SOUTH TO THE 
EGYPTIAN EL ARISH FACILITY, WHERE IT COULD BE LIQUEFIED AND 
MARKETED WORLDWIDE.  MEHMET ALI BAYAR, A FORMER DIPLOMAT AND 
TURKISH POLITICIAN, SUGGESTED THAT TURKISH-ISRAELI 
COOPERATION IN THIS AND SIMILAR ENERGY TRANSIT PROJECTS COULD 
HELP COUNTER GAZPROM'S MONOPOLISTIC BEHAVIOR AND RUSSIAN 
POLITICAL PRESSURE. 
 
12. (SBU) COMMENT: AS PART OF ISRAEL'S STRATEGY TO REDUCE ITS 
DEPENDENCE ON OIL, THE GOI ENVISIONS THAT FUTURE POWER PLANTS 
WILL UTILIZE COMBINED CYCLE GAS TURBINES FUELED BY NATURAL 
GAS.  THOUGH ISRAEL IS LIKELY TO CONTINUE IMPORTING RUSSIAN 
OIL AND EGYPTIAN NATURAL GAS, THE ABILITY TO TAP INTO OTHERS' 
PIPELINES IS VITAL TO ITS EFFORTS TO EXPAND AND DIVERSIFY ITS 
ENERGY SUPPLY.  SUCH CHANGES IN THE ENERGY SECTOR ARE STILL 
IN THEIR INFANCY -- AN ADVANTAGE FOR U.S. ENERGY COMPANIES 
LOOKING FOR BUSINESS OPPORTUNITIES IN ISRAEL.  HOWEVER, IF 
ISRAEL CANNOT RECTIFY THE UNSUSTAINABLE IEC MONOPOLY ON 
DISCOUNTED NATURAL GAS, THE LOCAL ENERGY MARKET IS NOT LIKELY 
TO ATTRACT PRIVATE INVESTORS.  END COMMENT. 
 
********************************************* ******************** 
VISIT EMBASSY TEL AVIVS CLASSIFIED WEBSITE: 
HTTP://WWW.STATE.SGOV.GOV/P/NEA/TELAVIV 
 
YOU CAN ALSO ACCESS THIS SITE THROUGH THE STATE DEPARTMENT'S 
CLASSIFIED SIPRNET WEBSITE. 
********************************************* ******************** 
JONES