PT:Government bars Israel Electric from paying higher price for Tamar gas
Jerusalem (Platts)--9Jun2011/720 am EDT/1120 GMT
The government has barred state-owned Israel Electric Corporation from paying more than market prices for natural gas from the Tamar offshore field and passing the hike on to consumers, officials at the Public Utilities Authority (Electricity) said Thursday.
The PUA regulatory agency instructed the utility that it could not raise electricity rates to cover costs that are higher than agreed to in a memorandum of understanding signed with the Tamar consortium in December 2009.
The move is the first direct intervention in the ongoing negotiations between the IEC and the Tamar consortium comprising Noble Energy, Delek Drilling, Avner Oil and Gas, Isramco and Alon Gas Exploration.
It follows the halt in gas supply from Egypt after an explosion that affected a pipeline in the Sinai region on April 26. The National Infrastructure Ministry and the PUA suspected the Tamar consortium was taking advantage of the situation to demand higher prices.
PUA's decision is seen as crucial as a deal with the IEC will serve as a benchmark for power prices for private and industrial customers.
PUA said in a statement that "a change in the number of natural gas suppliers does not need to influence the cost of gas set through long-term contracts or agreements in principle." The statement went on to say that "these changes should not influence the price of electricity."
Israeli energy industry sources said that negotiations between the Tamar consortium and the IEC have been going on for the past few months but hit a deadlock in recent weeks over the price.
The sources said that the Tamar consortium is demanding a 40% price hike from the initial price discussed when the MOU was signed. They added that it is unclear how the PUA directive would affect the talks.
In December 2009 the utility signed an MOU with the Tamar consortium for 2.7 Bcm/year of gas. Industry analysts at the time estimated the price at $5.50/MMBtu.
The parties had agreed to reach a final agreement within six months.
But a final agreement was not signed and industry analysts attributed this to efforts by the Tamar consortium to influence the government's decision on a new tax regime for the oil and gas exploration sector.
In the meantime, the IEC has more than doubled its initial request for natural gas from the Tamar field to 5-6 Bcm/year.
The Tamar field off Israel's northern Mediterranean coast has estimated reserves of 248 Bcm and is expected to meet local demand for the next 20 years. Deliveries are slated to begin in 2013.
