Manufacturers say high prices preventing switch to natural gas

The gov't, according to a source, blocked a clause in the IEC contract for EMG to supply an additional 1b. cubic meters of gas to IEC for resale to Israeli companies at the discounted price. That claim could not be confirmed.

January 25, 2006 07:02
2 minute read.
gas flame 88

gas flame 88. (photo credit: )


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The lack of competition and high prices are preventing industrial companies from making the switch to natural gas as an energy source, the Israel Manufacturers Association said Tuesday. IMA President Shraga Brosch called on the government to bring conditions that will encourage more suppliers to enter the Israeli market and to initiate a plan to establish private power stations that will better allow industrialists to use natural gas. There are currently two suppliers of natural gas to two manufacturer users in Israel after Israel Electric Corp. (IEC) signed a $2.5 billion deal in August to receive 1.7 billion cubic meters of natural gas per year from the Egyptian-based pipeline of the East Mediterranean Gas company - a consortium of EGPC, Herzliya-based Merhav Group and Egyptian businessman Hussein Salem. The other consumer Oil Refineries Ltd. (Bazan), is getting natural gas from Israeli supplier Yam Tatis, which extracts the gas from its reservoir off the coast of Ashkelon. "The problem is that EMG has a monopoly in Israel as the Yam Tatis reservoir cannot supply more than the amount that Bazan uses," said Nir Kantor, manager of the energy committee at IMA. "EMG is therefore able to raise its prices as there are no other players in the Israeli market." The IMA said that while IEC is getting its gas for $2.75 per million BTU (British Thermal Unit), an amount which an IEC spokesman would not confirm, private consumers are being offered a price of $4.30/million BTU and industry is being offered the gas at $6 to $7 per million BTU. A BTU is a unit of heat equal to the amount of heat required to raise one pound of water one degree Fahrenheit at one atmosphere pressure. A source close to EMG said that the prices were both lower than those quoted by the IMA and at a discount to global prices where the average price is between $7 and $10. The source explained that the IEC contract was based on a tender published in 2000 when oil prices were around $20 a barrel, but oil is now over $60, which would prevent any supplier from serving the Israeli market at the prices IEC is receiving. The government, according to the source, blocked a clause in the IEC contract for EMG to supply an additional 1 billion cubic meters of gas to IEC for resale to Israeli companies at the discounted price. That claim could not be confirmed. IMA's Kantor, meanwhile, said he would like to see British Gas, which has a reservoir in the Mediterranean Sea off the Gaza coast and participated in the IEC tender, enter the market as a competitor to EMG. While the company has expressed interest to do business in Israel, he said it can afford to wait until the right conditions existed for its entry. "The government can do more to encourage them," Kantor said. A spokesman for British Gas was not available to comment by press time. Natural Gas has been introduced as a cheaper and more environmentally friendly substitute for crude oil, diesel and LPG (liquefied petroleum gas) in industry and Kantor believes it has become vital for the Israeli market to make the transition. A number of medium to large companies were ready to make the change and in negotiations with a supplier, he said, but are hesitant because of the high prices.

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