12 July 12 19:01–Israel cannot by itself realize the potential of its natural gas discoveries. Only an international energy giant will be able to provide the finance, the experience, and the know-how required to do so. That is the main conclusion arising from a position paper drafted by consultancy firm TASC. The document, the findings of which are published here for the first time, examines the development potential of the Israeli energy economy over the next decade. It estimates that, alongside relative stagnation in the traditional energy companies, there exists huge growth potential in natural gas, and to a lesser extent in private independent power production and solar energy. Realizing this potential will enable Israel to triple its economic activity in energy by the end of the decade, from NIS 16 billion to NIS 50 billion. However, in order to get there, Israel will have to overcome some difficult obstacles: it will have to allow natural gas exports in sufficient quantities; it will have to zone sites for constructing huge liquefaction installations; and it will have to persuade one of the ten global energy players to invest its know-how, experience, and tens of billions of dollars in the Israeli economy.
The traditional players – painful blows
TASC’s position paper describes an energy economy in a period of the most significant change in its history. For 70 years, this economy has been dominated by three traditional sectors: Israel Electric Corporation (IEC); the fuel companies; and the oil refineries. In recent years, however, these traditional players have suffered a series of painful blows.
IEC was in trouble even before it was left without Egyptian gas. Its financial results for 2010 and 2011 indicate a gap of nearly NIS 3.5 billion between the profit figure derived from normative return-on-capital targets, according to which electricity rates are set, and the company’s actual profit. Its debt mountain has continued to rise, and is rapidly approaching NIS 70 billion. Its credit rating has fallen three levels in recent years.
The fuel companies sustained a severe blow in the shape of the cut in their sales margin on gasoline by the state. The margin fell from NIS 0.80 per liter to NIS 0.65. The continuing erosion of profitability, which began even before this cut, can clearly be seen in the market caps of companies like Delek Israel Fuel Corporation Ltd. (TASE: DLKIS) and Granite Hacarmel Investments Ltd. (TASE: GRNT) (which controls Sonol), which have fallen by more than 50% since 2008…Read More>>