Cabinet okays Tamar, IEC deal
Israel Economic Corporation obligated to buy 42.5 billion cubic meters of natural gas across 15 years. Deal estimated at $10-16 Billion
The Socio-Economic Cabinet has approved the biggest energy deal ever for the Israeli market.
The basic agreement includes purchasing 42.5 billion cubic meters (BCM) of natural gas over the next 15 years at $5.04 per MMBTU. The proposal, presented by Water and Energy Minister Uzi Landau , notes that the demand for a long-term contract came from the funding entities.
The Israel Electric Corporation will buy at least 3.5 BCM (TAKE OR PAY) natural gas during the first 5 years of the deal and it will buy at least 2.5 BCM per year each following year.
The estimated consumption rate might reach 5 BCM a year, depending on the demand of the IEC. The deal includes future acquisitions that may raise the amount to 77 BCM, but due to existing transport limitations this would entail either enlarging the current gas pipeline or creating new conduits leading from the sea to the coast.
The original agreement was amended in light of demands from the IEC and the head of the Israel Antitrust Authority and will enable other suppliers to enter the market in the future. The price paid by the IEC will be linked to the US consumer price index (CPI) and the automatic price-hike mechanism - a 1% rise in the first eight years of the agreement. A 1% price reduction starting from the ninth year has been cancelled.
Also, any future gas acquisition will be linked to the US CPI by only 30%.
In addition, the IEC can assign the gas acquisition to one of its subsidiary companies in case the Israel decides on breaking down the monopoly into a few subsidiaries. The Tamar Partnership is currently owned by Noble Energy (36%); Delek Energy (31.25%, equally owned by Avner Oil Exploration and Delek Drilling); Isramco (28.75%) and Dor Gas Exploration (4%)
During the discussion, the Energy Ministry tried to introduce a new clause that would enable the cabinet to determine who could receive gas via the single exiting pipeline. The IEC opposed the clause and it was omitted, meaning that in the future the state can cut the amount of gas supplied to the customers in accordance with the Natural Gas Market Law, but will have to prove that doing so was necessary.
