Israel Mulls Plan to Let Private Partners Use Offshore Gas Site for Storage

No public tender has been issued for use of the Mary B site for storage, but cabinet to vote on proposal to let Tethys Sea partnership use it to hold natural gas for the Tamar production site.

The rights to the Mary B natural gas drilling site off the coast of Ashkelon, which was discovered in 1999 and will soon be depleted, will not be returned to the state, if an Energy and Water Resources Ministry proposal being presented Sunday to the cabinet is approved.

Even though no public tender has been issued for use of the site for storage, Deputy Attorney General Avi Licht has ruled that the site can remain in the hands of the Tethys Sea partnership, which obtained rights to the site at the end of last year, so it can be used as a storage site for natural gas from the large offshore Tamar production site. The Tamar site began production this year.

The plan being presented to the cabinet would condition the use of Mary B as a site for gas storage on the partnership's constructing a gas pipeline to the Ashkelon coast as well as construction of a facility to receive the gas no later than the end of 2016. The arrangement would also require that at the expiration of the storage agreement, in what is thought to be another 7 to 10 years, the partnership's rights at Mary B would expire and the entire facility would be transferred to the state in good working order. The partnership, however, opposes such conditions.

Last December, just prior to the January Knesset election, then energy minister Uzi Landau, in what was seen as political opportunism prior to the end of the government's term, announced that rights to the Mary B site would be given to the Tethys Sea partnership, 53% of which is owned by Yitzhak Tshuva's Delek group while the other 47% partnership interest is held by U.S.-based Noble Energy. The two Tethys Sea partners also have a combined 67% interest in the Tamar site.

Although technically the Tethys Sea partnership got a 30-year license to operate Mary B, according to the law, the rights are conditioned on continued production of gas there. Once the gas runs out, the partnership would normally be required to hand the rights to the site back to the state. Landau chose, however, to give the partners, Delek and Noble Energy, a new license to store gas there.

According to estimates, the cost of laying the additional pipeline to Ashkelon would run about $250 million, but the management at Tethys Sea claims there is no essential need for such a pipeline and it is not economically viable.

Cabinet sources, however, reject the partnership's objections, claiming that not only would the additional pipeline be economically viable, but the Tamar partnership is obligated pursuant to its contract with the Israel Electric Corporation to lay another pipeline to Ashkelon.

Deputy Attorney General Licht approved the granting of the storage rights at Mary B, without a public tender, based on the stance of the Energy and Water Resources Ministry. The ministry argued that providing the partnership the storage rights is necessary to ensure reliable and expanded supply of gas from Tamar. Furthermore, the ministry argued, there is no other party that was currently capable of operating the Mary B site as a gas storage facility.

Another matter of concern, however, is the prospect that those in possession of Mary B as a storage site would be able to arbitrarily set storage fees and decide which potential customers would receive services from the site. In the past, the Energy Ministry had stated that as a condition for receiving rights to operate Mary B as a storage site, the license holder would be required to provide services to all offshore gas producers, but the condition was not imposed in the end. The proposal before the cabinet does, however, call for government involvement to the full extent necessary.

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