Israel Wooed With Offers for Cheap Imported Gas

Israel Electric Corp. has signed a contract with BP and now private-sector users are getting offers. But for the latter, regulatory and technical barriers must be lowered.

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Offshore Leviathan natural gas drilling site.
Offshore Leviathan natural gas drilling site.Credit: Albatross

The Israeli energy market is being tempted by offers for inexpensive liquefied natural gas from abroad as the price of gas from the country’s own Tamar gas field is rising. However, regulatory and technology barriers will need to be lowered for the gas to flow.

Last week, TheMarker reported that state-owned Israel Electric Corporation had signed with Britain’s BP to buy LNG for just $4.90 per MMBTU. IEC is paying $5.70 for natural gas from Tamar under its long-term contract with the field’s partners.

Now Israeli companies are also being lured with offers of cheap natural gas from global suppliers at prices even lower than BP’s contract with IEC. At least one manufacturer said he had been offered LNG at the spot price of $4.75 per MMBTU to $4.80 per mmbtu, including the cost of regasification.

The offers come as global LNG prices plunged 70% in the past two years, mirroring the drop in oil prices. By comparison, the price IEC pays for gas from Tamar — Israel’s sole offshore field now in production — under its long-term contract rose by around 5% during the same period.

The only obstacle to imports is the fact that Israel has only one regasification facility. The Hadera plant, controlled by the state-owned Israel Natural Gas Lines Company, began operations three years ago to supply LNG for use by IEC and there are no regulations for private-sector use.

As a result, there is no pricing policy and it’s not clear whether IEC could charge a users’ fee. Until that is settled, the final price — or even the viability — of the offers being made to the private sector remains unsettled. But at least one official said the government would have to act soon.

“As long as the differential between gas piped in from Tamar and LNG is so wide, regulators will have to choice but to start developing the required supervisory mechanism for imported gas,” said one government source, who asked not to be named. “It can’t ignore the requests from industrial users to examine imports.”

The source warned, however, that IEC may seek to block private LNG imports on national security grounds.

IEC’s LNG is imported to Israel via Cyprus through a regasification ship leased from the U.S. company Exelerate and brought to a facility 10 kilometers offshore Hadera. While the facility is regarded as open access, there are few ships regasification ships worldwide and they are tied up in long-term contracts.

The private sector could make use of the Exelerate ships, but only a few very big industrial users have needs big enough to justify hiring a ship with a capacity to unload 138,000 cubic meters of gas in the space of two weeks, which the maximum time before IEC would need the ship for its own use.

One alternative is to build a second unloading facility on the coast. This was proposed four years ago but mothballed in expectation that Israel’s Leviathan offshore field would be in production soon enough that it wouldn’t be needed. But with doubts about Leviathan’s near-term variability, the energy and finance ministries have begun exploring the idea of a second terminal.

In addition, Exelerate offered some time ago to lease Israel a second ship at a cost of $65 million to $70 million annually.

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