Karish Partners in Talks to Sell Gas to Private Power Plant in Israel

Deal would be first for energy company not part of the gas cartel.

Rigs in the Tanin natural gas field in the Meditarrean Sea, off the coast of Israel.
Energean

In what could be the first contract not involving the natural-gas cartel, the partners of the Karish field are in advanced talks with Dalia Power Energies and its sister company, Or Energy, to supply gas to the companies’ private power plants, The Marker has learned.

The negotiations are based on a price of around $4.50 per million British thermal units, 20 cents below the floor price set in the state’s royalty agreement with the Noble–Delek cartel controlling the Tamar and Leviathan fields. It would be 25% less than the $5.82 Israel Electric Corporation pays the cartel.

Greece’s Energean bought the Karish and Tanin fields from Delek Group subsidiaries Delek Drilling and Avner for $148 million last year, making them the first fields with proven reserves not controlled by the Noble-Delek cartel.

Discovered off Israel’s Mediterranean coast in 2013 and 2011, respectively, Karish and Tanin have gas resources of about 2.4 trillion cubic feet, but have yet to be developed. Delek was forced to sell the field as part of the gas framework and is entitled to royalties of 8.25% on any future sales.

A spokesman for the Karish field declined to comment beyond saying, “We are conducting negotiations with all potential customers for the gas.” But sources said a letter of intent between Energean and the buyers was likely to be signed next month.

The contract talks got a boost earlier this week from the cabinet, which approved a package of incentives for small producers like Energean, including subsidies for laying pipeline from offshore fields and commitments from all producers to back each other up if supplies are interrupted.

Or Energy already operates Israel’s biggest private power plant – a 910-megawatt facility at Tel Tzafit – and plans another 850-megawatt plant down the road and two more totaling 1,400 megawatts.

In December, Or signed an agreement with the Leviathan partners to buy 8.8 billion cubic meters of gas over 20 years. But if the company does develop all the power plants as planned, its gas needs will be seven times that number.

For now, though, Or doesn’t need the gas, although it is possible that Dalia will take some or all of the gas being discussed.

That presents a problem for Energean, which needs to land contracts to sell at least 3 BCM of gas annually before it can line up the financing it needs to develop the Karish field from customers with facilities already in operation.

In February, the Greek company began the financing process after Kerogen Capital agreed to invest an initial $50 million in Energean Israel, ahead of the planned $1.3 billion development of the Karish and Tanin fields.