Attack on Egypt pipeline shuts down production; last two attacks knocked out service for total of 80 days.
By Avi Bar-Eli

Seven years after the advent of the natural gas era in Israel, the government is mulling a return to generating electricity with the use of costlier, dirtier fuels because of the unreliability of the Egyptian supply.

At 1:30 A.M. yesterday, saboteurs blew up the pipeline feeding Israel for the third time this year, completely knocking out the supply of Egyptian gas once again.
Epypt pipeline

Gas explosion at Bir al-Abd, Egypt.
Photo by: AFP

The last two attacks on the pipeline knocked out service for a total of 80 days. During that time, the Israel Electric Corporation bought gas for high prices from the Tethys Sea group, and made use of alternative fuels. But the remaining Tethys Sea supply is not large, the Tamar deep-sea field isn’t expected to start producing gas before 2013, and the government is now considering a policy reversal – reverting to wider use of mazut and diesel to produce electricity, at least in part.

The Tethys Sea partners have been pumping gas to feed the IEC from the Mary-B field off the shores of Ashkelon. But heavy reliance on the Mary-B field will deplete it within the next two years, before Tamar comes on line, government sources fear. Therefore, the government is considering restricting use of Mary-B gas by the IEC, so that the reserve there will last longer. Instead of gas, the IEC will then make more use of diesel and mazut to run its stations.

The IEC and Public Utilities Authority (Electricity ) have been modeling the economic ramifications of two scenarios. One is aggressive exploitation of the Mary-B field from this point on and use of fossil fuels if Mary-B runs out before Tamar comes on line. The other scenario deals with spreading out the Mary-B gas over several years and using fossil fuels in parallel.

Apparently, one of the scenarios would come in about half a billion shekels cheaper, until the IEC can revert back to natural gas as its main fuel. But the final calculations aren’t in yet.

Meanwhile, the National Infrastructure Ministry is looking at importing diesel to fuel the IEC. The IEC has asked the Public Utilities Authority and the government to help it finance a giant acquisition, of 650 million tons of diesel for this year alone. Of that, 250 million tons would be earmarked for use in July and August alone – months characterized by heavy power usage as the people of Israel turn on their air conditioners. The diesel would cost about NIS 3.5 billion.

Smog fog in Tel Aviv?

According to the models, the IEC would only make use of mazut and diesel at peak usage times, which means summer (June to August ) and winter (January and February ) and only for two or three years.

In one scenario, the IEC would use the costlier fossil fuels throughout 40 days a year, on average.

Diesel would be used at Ramat Hovav and at Hagit (nearby Elyakim ).

As for mazut fuel oil, it remains to be seen if the government will approve its use at all. It is cheaper than diesel, but it also causes more pollution. If the government does approve its use, mazut would be relevant at three stations – the Eshkol power station at Ashdod, the Reading power station in Tel Aviv, and the power station in Haifa. However, the Haifa station is unlikely to be useful: One of its two units was damaged after a technical problem and the city of Haifa has banned the second unit from use.

The models are based on highly complicated probability assumptions, and the calculations would change with any change in the parameters.

One such change is that the Egyptian gas supply does resume (equity analysts aren’t sanguine about that possibility: See story on Page 8 ). Another is change in the start of production at Tamar, and yet another wild card is the price of various fuels on the market.

Also, any operation of power stations using diesel or mazut requires the blessing of the Environment Ministry, which has cracked down on use of fossil fuels, and mazut in particular.

The broad government would also have to come on board, in part because to meet the expenses, the state would have to reduce tax on diesel.

Egypt: Pipeline isn’t badly damaged this time

Last week, even before this third successful attack on the Egypt-Israel gas pipeline, the Public Utilities Authority said the price of power to consumers had to rise by 20%, based on the assumption that Egypt would only supply 30% of its contracted amount of gas this year. This assumption took a body blow in the early hours of Monday morning, when saboteurs knocked out the pipeline again, attacking in the Sinai.

The gas supply had only been reinstated from the second successful attack for a month. Now, not only Israel but Jordan, Syria and Lebanon too have lost their supply of Egyptian gas.

The explosion took place at a pumping station along the pipeline at Nagah in the Bir Abdu region in the northern Sinai Peninsula, sources told Reuters. That’s about 80 kilometers west of El Arish.

This time the attack, therefore, was deep in the desert. The former attacks had been 30 kilometers from El Arish.

Under the peace treaty between Israel and Egypt, the Sinai is a demilitarized zone. But after the initial attacks, Israel agreed that Egypt place forces in the Sinai to protect the pipeline.

How badly the pipeline was damaged this time remains to be seen. However, energy sector sources believe that this time, the damage was less than before and could possibly be fixed in a matter of days, not weeks.

Landau: We have solutions

Egyptian is supposed to supply 50% of Israel’s gas needs, to the Israel Electric Corporation and to Oil Refineries, known in Hebrew as Bazan.

Egypt is contractually supposed to supply 2.2 billion cubic meters of gas a year, including 2.1 billion for Israel Electric Corporation power plants. The rest is sold to the Nesher cement factory in Ramle, and Makhteshim-Agan Industries and Haifa Chemicals facilities in the south.

All the private customers have arranged backup supply contracts with competitor Tethys Sea.

Egyptian gas powers about 45% of the IEC’s production capacity, leaving the electric company with three options in the face of a halt to Egyptian supplies.

According to the Public Utilities Authority (Electricity ), the latest cutoff of Egyptian gas has already added NIS 340 million to the IEC’s fuel tab, which could raise electricity rates by about 2% (for the year ).

Summing up, the loss of Egyptian gas from the start of the week translates into a 5% increase in the IEC’s fuel bill so far. This in turn translates into a rate increase to the public of about 3%.

Cabinet ministers have remained mum on the prospect of a electricity rate increase. They refuse to be engaged on the implications of gas shortages on electricity rates.

National Infrastructure Minister Uzi Landau yesterday chose to concentrate on the issue of securing the supply of gas. “With all of the difficulties, it’s important for the State of Israel to have solutions in the immediate term,” landau said. “Among the ways we are dealing with this is by changing the fuel mix.

“Israel has gas and we also have fuel oil and diesel as backups for the shortage of Egyptian gas, and no disruptions are anticipated in electricity supplies. The [National Infrastructure] Ministry is prepared to provide short-term, medium-term and long-term solutions. We are organizing and dealing with the need to bridge the gap over the expected shortage of gas in 2013, and using all our energies to establish a floating liquefied gas platform in the sea and all our energies to connect the Tamar field to the coast.”