Faced with unexpectedly strong demand for power and high prices for domestic natural gas, state-owned Israel Electric Corporation is stepping up gas imports, industry sources told TheMarker.
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Four months ago the IEC signed a deal with BP to import 138,000 cubic meters of gas from Trinidad and Tobago. Upon the signing, the Israeli company said the need to import even more gas was so urgent that management won permission from the board to skip the normal tender process to ensure deliveries in time.
“Without the approval that will enable us to accelerate the purchase process, it is doubtful we will be able to buy the shipments in time and the company will find itself without LNG at the peak of summer and be forced to use oil,” IEC management told the board, referring to liquefied natural gas.
The IEC has made inquiries with BP, Britain’s BG, the Dutch energy trader Vitol and the U.S. LNG transport company Excelerate Energy to supply 90,000 cubic meters between August 28 and September 3.
The surprise request comes as the IEC struggles to deliver power to homes, offices and factories after weeks of unusually high temperatures that have kept the nation’s air conditioners running overtime.
While Israel has plenty of its own gas in the Tamar field just 90 kilometers offshore, deliveries are limited because only one pipeline links the field to delivery points onshore. In addition, the price of Israeli gas, which is linked to the U.S. consumer price index, is high and rising, today at about $5.80 per million British thermal units.
But with energy prices crashing globally, the price of even costly LNG has fallen sharply. When the IEC contracted for liquefied natural gas from BP in April, it paid just $4.90 per million BTU. The price is so low that even coal, the IEC’s other main fuel, is more expensive.
Under the take-or-pay contract the IEC has with the Tamar partners, it must accept delivery of all the gas it has agreed to, but it is not required to take more.
Importing liquefied natural gas is a complicated process because Israel has no onshore regasification facility. Instead, the gas is brought to a $150 million offshore buoy that can be connected to a floating storage and regasification unit operated by Excelerate.
But each time the regasification unit is emptied it has to leave Israeli waters and sail to Cyprus to be resupplied with LNG from an awaiting LNG cargo ship, a lengthy process.
The IEC is seeking permission from the Energy Ministry to allow the regasification unit to be permanently anchored in Israeli waters. The utility contends there are no security risks in doing so.
Meanwhile, the energy and finance ministries last week began examining the issue of developing a second buoy. Not only does the IEC want to use more liquefied natural gas, but many big industrial users want to as well but get lower priority since the IEC controls the one existing buoy.