Israel Bars Energy Companies From Passing on Costs of Pipeline Fault to Consumers

Prices rise as power companies turn to alternative fuel while Tamar offshore field is being repaired

File photo: An aerial photo of the Tamar natural gas rig, located 90 kilometers west of the city of Haifa, northern Israel.
AP

Israel’s Electricity Authority on Monday warned energy companies that it would not let them pass on to customers “unreasonable costs” resulting from the disruption of the natural gas supply this week from the Tamar offshore field. Natural gas is used to generate more than half of Israel’s electricity supply.

“We expect power producers to understand that even if we’re in an emergency situation, it doesn’t mean the purses are opening up,” said one source.

The Tamar field, Israel’s sole source of domestic natural gas, suspended deliveries late last week after cracks were found in the pipeline. Repairs are not expected to be completed before Thursday. As a result, Israel Electric Corp. and private power companies are being forced to use more expensive fuels.

The Electricity Authority said it had become concerned after receiving reports that the increased demand for alternative fuels now being used by electricity providers had caused prices for diesel fuel at gas stations to rise.

The authority said it was also beginning an examination with other government bodies of gas contracts with power companies to see whether the Tamar partners were liable for compensating customers for the costs of buying alternative fuel.

At issue with the gas contracts is whether the cracks are considered force majeure, which ordinarily would exempt the Tamar partners from paying any compensation to customers for losses. If it finds others, the authority said it would establish a mechanism for payments.

Lawyers for the power producers said they would fight any force majeure claims by the Tamar partners, with one attorney calling it “baseless.”

In any case, sources in the power industry said on Monday that the loss of gas for several days was not a serious problem.

“A four-day crisis isn’t significant. The scenario the industry really needs to prepare for is an explosion at the [Tamar] platform that interrupts supplies for two years,” said an executive who asked not to be identified.

“The industry is dangerously reliant on a single platform and a single pipeline. The solution is to develop for fields and to ensure a supply of liquefied natural gas. We need to have a pipeline network that carries diesel to every power station,” he said.

He said such solutions were being worked on now with the defense establishment and government ministries but that plans won’t be ready for another two years.

Shares of the Tamar partners were mostly down for a second day on Monday. Delek Drilling fell 1.1% to 10.97 shekels ($3.12), Tamar Petroleum 1.1% to 22.53 and Isramco 1.2% to 50 agorot. In new York, Texas-based Noble Energy was up 2.7% to $27.76 after the company raised its forecast for sales volumes in the third quarter.

Regarding Tamar, the company said, “All facility maintenance is anticipated to be completed within the next few days, and there is no substantial impact to planned production volumes.”

A day earlier Delek Drilling had estimates the shutdown would cost of $3.5 million and a total of $15 million for all the field’s partners. The loss takes into account that the flow of gas had already been cut by half due to routine maintenance underway.

However, taking into account the reduced flow over maintenance period plus the complete shutdown now, total losses will probably reach $42 million, or 2.7% of annual income, based on revenues of $780 million.