Israel Electric Corporation to Import Gas for Less Than It Pays Domestically

Government-owned utility signed an agreement last month with BP, the giant British energy firm, to import liquefied natural gas for consumption in Israel in three large tanker ships.

Tamar
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Israel plans on importing natural gas at a price lower than the gas being produced from its own offshore reserves, TheMarker has learned. The government-owned Israel Electric Corporation utility signed an agreement last month with BP, the giant British energy firm, to import liquefied natural gas for consumption in Israel in three large tanker ships.

The gas slated to be imported is designed to buttress supplies from Israel’s own offshore Tamar production site for regular consumption, and to help the electric utility cope with excess demand for gas during peak periods. The BP gas would bypass the single gas pipeline that connects the Tamar site to the port of Ashdod.

Tamar is Israel’s major domestic source of natural gas. A much larger gas reservoir dubbed Leviathan is not yet in production and has been stalled by legal disputes over regulatory terms that the developers of Tamar and Leviathan have been promised. The two lead developers are Noble Energy of Houston and Israel’s Delek Group.

The BP gas is being bought at $4.90 per BTU including the cost of shipment and gasification. Yet the Israel Electric Corporation is paying $5.70 per BTU for the gas that it is receiving from Tamar. It is thought that the gas that is to be provided by BP is coming from the Caribbean nation of Trinidad and Tobago. In practice, therefore, the utility is buying gas from the Western Hemisphere at a lower price than what it pays for gas coming from 90 kilometers off the coast of Haifa.

Liquid natural gas prices in the Mediterranean area have actually dropped further since the contract with BP was signed, to $4.70 to $4.80 per BTU, but the IEC has a “take or pay” contract with the developers of the Tamar site requiring that it pay for most of the gas for which it has contracted even if it doesn’t need it.

With respect to the BP purchase, it is thought that the IEC chose the company because of relatively flexible supply terms that the company was offering. The disparity in price between BP’s gas and the supply from Tamar is connected to the terms of the contract that the IEC signed, which include linkage that automatically increases the price of gas at a rate of 1% over the inflation rate in the United States. By 2021, that may boost the price of gas to $6.50 per BTU. The IEC’s Tamar contract allows the price to be renegotiated in 2021.

In the past, against the backdrop of the controversy over the government’s gas framework, the IEC said it is “not a party to the framework” and “the priority of the company is to ensure a continuous supply of gas at a fair price and not to foil or promote the gas framework.”