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A change in the energy mix

Interview - September 28, 2015

In an exclusive interview with Globus Vision, H.E. Yuval Steinitz - Minister of National Infrastructure, Energy & Water, discusses the current situation of the country’s energy mix and the transformation which is set to occur following the natural gas discoveries in the Leviathan and Tamar gas fields.


The Israeli economy ranks as one of the best performers among the 37 most advanced economies. IMF’s projections for 2015 put Israel among the fastest growing advanced economies, behind only Ireland and Singapore and way ahead of heavyweights such as US or Germany, even at a latent conflictive environment. What explains both the success and resilience of the national economy?

There is a variety of reasons. Therefore, it is difficult to really analyze and understand what the main one is. I can generally say that in the last two decades we have developed a very strong and vibrant high-tech driven economy.

This, together with the flexibility and the tendency of the Israeli people, including sometimes the leadership, to think outside of the box and to improvise has helped us very much during the global and regional crises.

For example, in 2008 and 2009, we suffered from three quarters of negative economic growth at the beginning of the global crisis. After the collapse of Lehman Brothers, unemployment reached 10% in the summer of 2009, but we managed to adopt a counter-crisis philosophy and approach. By 2010, we were growing at a close to 6% annual rate.

What was even more impressive was that in 2010, 2011 and 2012 the investments in the real economy in Israel went exactly the opposite direction of those in the US, the European Union and most of the world.

We were growing, accumulative, 36% in investments in the real economy. We produced much more new jobs, several hundred thousands of them. Unemployment went down exactly with the change of course.

When I became Finance Minister, my first step was to announce that Israel would be, from then on, adopting two-year budgets.

This was contrary to the custom in Europe and the US, because all those stimulus plans were actually new budgets every three or six months. Instead of shortening the budget cycle, we enlarged it.

And since, then it has always been a two-year budget. Israel is the only Western country which has this type of budget.

We also put emphasis not on encouraging consumption or in local activities, but on encouraging new investments in the country.

This was a totally different counter-crisis philosophy than the one that was adopted in the US or in Europe.

I think it is a proof in itself that we have a very strong and vibrant high-tech economy. The tendency of Israeli entrepreneurs, engineers, scientists, economist who think out of the box is a playing a major rule here.

On the one hand, we have too much regulation and too much bureaucracy, while on the other hand people have a flexible mind.

There are such rapid changes in the global economy, in global technology, in regional situations, that to be flexible and to be creative is extremely important.

Why is this so? Part has to do with our military service. All of our young people have to go to the IDF when they finish high school—boys for a minimum of four years, girls for a minimum of two.

First, this helps them get some confidence and responsibility. Second, our mandatory military service has a system different than other Western armies. It is much more open: simple soldiers can make their point; they can argue with the commanders, they can make their own suggestions.

Just to give you an example, I was sitting in the government at the Security Cabinet, and some intelligence reports came in for me to read.

The report had been composed by Sergeant Alon Steinitz, my 19-year-old son, who was serving in the Intelligence! He had joined the army nine months before.

I cannot think of any other Western army that has reports composed by 19-year-olds that will be read by the Prime Minister, the Defense Minister, the Chief of Staff and members of the Cabinet.

This is very typical in the way that young people are getting responsibility, they are really contributing to the system and they learn a lot: technology, science, and intelligence.

They also feel that they participate in something very big, which is a heavy responsibility. This is a very unique experience that the young Israelis have.

They start university four years later, but they have this advantage, as they are mature and they feel like they can do things, that they are trusted. They learn a lot during the military service.

It is like a second university or second high-school.

Being one of the most innovative economies and with extensive official support to education and R&D activities, Israel has been dubbed as the “start-up nation”. In the Global Innovation Index, Israel ranks 15th of 143 surveyed countries. Many argue this is because of a combination of concentrated tech clusters, a global outlook from the get-go, useful skills gained in mandatory military service and a healthy dose of “chutzpah". But, up to what extent do you believe it is due to the entrepreneurial spirit that has always defined Israel?

We encourage this, even in the army. Privates and sergeants speak up as much as first officers in the army. It is legitimate, and I cannot think of other Western armies in which you have simple 18 or 19-year-old soldiers making comments in front of admirals and generals.

This has to do with the chutzpah, we educate young people to think big, we educate them so they can change the world, they can argue with us.

It is embedded in the Jewish tradition, in Talmudic tradition, that all the teaching and learning is through debates and arguments, Socraticstyle dialogues.

The Rabbi are not just preaching to the students, but the students have to debate with the Rabbi or among themselves. This is a way of teaching Talmud, Mishnah and Jewish wisdom.

The geopolitical situation of the country, by nature, makes it very challenging for the energy sector. Most of the countries worldwide are collaborating with their neighboring countries when it comes to sharing energy-related infrastructure. How is Israel overcoming such challenge?

Israel is like an island, by all means. Our relations with most of the Arab and Muslim world are not good enough yet. We have established peace treaties with Egypt and Jordan, but this is still a very cold peace I would say, not warm enough. We hope to change it, though.

Maybe also because of this, our natural partners are in the US, Europe, maybe China and Japan, not so much in the Arab world around us.

We produce some of the best computer chips, software and hardware, then naturally we will integrate with different industries in the US and Europe, that unfortunately do not exist in Syria or in other neighboring countries.

The same goes to energy. We are an island, which means we export and import with a wider world and not so much with the region.

Regarding energy, we discovered very large gas fields in the Mediterranean five or six years ago.—Tamar and Leviathan. One of them, Tamar, was developed and is already supplying plenty of domestic gas for domestic use.

The other, Leviathan, is still waiting to be developed, which is my first priority at the moment. It had been stuck because of regulatory problems, and we are now working very hard to pave the way not just for development of the gas field but for new discoveries.

A lot of gas is still waiting, to the best of our knowledge, to be discovered in our economic waters.

This is extremely important. We have already initial discussions with neighboring countries, mainly Egypt and Jordan, about exports of Israeli gas.

If this takes place, it will be very good not just from an economic point of view but also in order to create some real economic linkage in the Egypt-Israel-Jordan axis of peace.

In order to enable this, we have to develop additional gas fields in the Mediterranean first.

Five thousand feet beneath the surface of the East Mediterranean Sea lies the Leviathan gas field, the largest discovered natural gas repository since the turn of the 21st century. It is just the latest in a string of East Mediterranean oil discoveries that should allow Israel to become a significant exporter of natural gas over the next decade. To what extent may the potential of your future gas exports reshape the energy dynamics across the Mediterranean?

It has already created a big change in Israel. We used to produce our electricity from oil in the past, and we now produce almost 60% of our electricity from natural gas that comes from the Mediterranean.

We are now in the process of supplying cheap natural gas to industries all around the country. We have already built the pipes with the government companies, going North, South and East.

In the next four years, about 300 or 500 factories and industries around the country are going to be connected. It is very significant.

Moreover, our electricity prices went down. Without our gas fields in the Mediterranean, the price of electricity in Israel would probably be 50% higher than it is now.

So the cost of living and also the cost of production have dropped. This is extremely important.

We have discovered so much gas, we will have to export it—around half of it. If we discover more gas, of course we will have to export more.

The natural export destination is currently Egypt, because it is consuming 50bcm a year. In five years, it will probably be closer to 100bcm. There will still be plenty of room for Israeli gas to be exported to Egypt.

If we discover another one or two big gas fields, and if Egypt or Cyprus discover additional gas fields—which is very likely, I would say—then it might justify a pipe going from the Eastern Mediterranean, passing through Cyprus and Greece or Italy to Europe.

This is a very expensive pipe, because the sea is very deep in some areas. But if, instead of exporting several hundred bcms, we get together with Egypt and Cyprus to export several thousand bcms to Europe, then I think it will justify a direct pipeline going from the Eastern Mediterranean to Western Europe.

Similar to the one in the Caspian Sea but deeper and, therefore, more expensive. We have to wait for some additional discoveries to see if this can be feasible, economically speaking.

How do you see the presence of American companies in the future development of the energy sector of your country?

It is very important. So far, we have only company that is deeply involved—Noble Energy. This was the first company to collaborate with Israeli companies.

It brought the technology to discover rich gas fields in Israel, Tamar in 2009 and Leviathan in 2010. We appreciate this, but since we have our anti-cartel regulations, the scene will be now open to other companies, including other US companies, to search and to develop new gas fields.

The gas framework has already been concluded and approved by the government. Now we are waiting only for one little signature. I am confident that in a few weeks' time this will all be resolved.

Before I became Minister, three or four months ago, there was not a unified policy regarding gas within the government. The different departments, branches and regulators were contradicting each other, so my first mission was to put all entities around one table and to agree on one policy, one approach.

The second stage was to sit with the major companies, and to agree with them. The third one was to convince the government, which approved my proposal 17 to 1.

Now we are waiting for a signature. I assume this can take a few days or weeks, but hopefully we will resolve it.

Now, under this framework, we force Noble Energy to sell little- to medium-sized gas fields to completely different operators in different companies. Karish-Tanin, for example, is about 60bcm.

We also force them to sell most of their shares in Tamar, which is a much bigger field with 320bcm, and to develop Leviathan in the short time—that is, four years.

The general attitude is that we want new companies, we want competition in the gas market in Israel, and we want a lot of gas to be discovered.

So far, we have explored only 20% to 30% of our economic water, so 70% to 80% are still waiting to be explored. According to our best knowledge, it is quite probable that new significant gas and oil fields are waiting to be discovered.

We would like to see other companies here, from the US, Europe, Australia.

Some companies—more from Europe than from the US—have already expressed some interest. I hope that US companies will also arrive here as soon as possible.

You are an expert in international relations, and you value the importance of communication and staging Israel as a friendly country for foreign investment. What are your plans as Minister of Infrastructure and Energy in order to showcase the potential you were just describing to foreign markets?

I used to be the Finance Minister. As I have told you before—and I hate to fight against global economic decisions—, I have to emphasize long term planning, the two-year budget as a result, the annual budget.

One year-budgets are disastrous; it is the most irrational and unreasonable way to run a modern economy. You need at least a two-year budget to give you enough time to execute your plans and to make long-term planning.

In addition to this, there was another pillar to my policy: investments in the real economy. While in Europe and the US there was an attempt to supply cheap money and to increase government budgets significantly in order to encourage consumption—a traditionally Keynesian approach—, my policy was totally different.

The right attitude is not to encourage consumption; the right policy in times of crisis is to encourage investment, to build yourself into the future and not to simply try to swim with this artificially encouraged consumption.

Therefore, I put all my emphasis on encouraging investments. I gave many incentives for investments; I enlarged government investment in infrastructure, in order to make investments more profitable in the future.

There were two kinds of infrastructure: physical—mainly transportation—and education.

The message to the world was, 'We already have very good scientists and engineers and workers and entrepreneurs, but we are going to improve it even more.'

So we are investing in higher education, in colleges and universities.

I travelled all over the world to convince investors. I gave many conferences about investment opportunities in Israel with my team in the US, Europe and even in India and China.

Amazingly, in 2010, 2011 and 2012 we were growing around 12% a year in investments in the real economy. Exactly the opposite direction of most of the Western world.

These were the things that really helped us during the crisis, to reduce unemployment, to grow. The average growth was 4% to 5%, after we had started the crisis with negative growth.

It was mainly through investments, not through increasing consumption. When you increase investments in the real economy, you are doing two things.

First, you build a future. But building the future now already increases the economic activity now. If you build a company, or a factory or a road or something, it will increase your productivity in the future but it already implies more economic activity.

I am very much in favor of investments and building your economy into the future by investing in fixed assets that will produce some value in the future.

I want to keep going around the world and explain to energy companies and financial institutions that it is high time they came to invest in Israel's energy sector.

Another advantage that we have is in the water area. We have maybe the best water infrastructure and technology in the world. This is a country that is on the edge of the desert, 70% of our territory is complete desert, and we have elaborated very good water technology.

The dripping irrigation was invented in the South if Israel, for example. We have Mekorot, the government company. There is no such company in the world:  they desalinate water, purify recycled water, they take water for hundreds of kilometers, from the center to the South and to the North. There is no such a government water company in the world.

Israel became the only country in the world to do this: by the beginning of next year, 75% of our drinking water will come from desalinating, instead of from fresh water.

Also about 75% of our farming water will be recycled. We are taking only 25% of our water comes from nature as it is. The rest, we take it from the sea; first for drinking water, and then we recycle it for agriculture.

I think the second country in recycling in Spain, where the ratio is around 20% to 30% of recycling. The same goes for desalination.

If we think about the drought in Western US, in California, we have all the technology and all the solutions.

We know how to enable states like California and others in the world how to solve water problems while leaving enough water to nature, as we prefer to desalinate.

Sometimes it is even cheaper for us to do so, because to take water from a fresh water source to Tel Aviv is more expensive than desalinating water not far away from the city. We have a lot to offer to the international market.

With your impressive political career, what motivates you every morning to come to this office?

What motivates me is to resolve enormous problems, and to help the country's infrastructure and economy to move forward. It is so interesting, and you meet so many interesting people, and you meet so many creative ideas and new technologies.

In the past, I used to be professor of philosophy, which was very interesting as well, but this is very challenging. I feel that, from time to time, you feel that you succeeded in resolving something, which is a great satisfaction.

Would you say getting the regulatory framework together is one of your main accomplishments so far?

It is, since I came to this office some months ago. We currently have a problem of over-regulation. The intention was good, but in the end when you have too many independent regulators that do not coordinate with each other, means you have no policy.

And we need the energy policy. So my first mission, of which I accomplished a part already, was to create a unified policy.

To take into account all the regulators' and departments' ideas and demands, but in the end to decide on one policy, and to move forward.