Israel Corporation dumps Tamar for Egypt’s EMG

Israel Chemicals’s contract is worth $370 million- $460m. through 2030, depending on the final terms. The contract includes a floor and ceiling price.

By KOBY YESHAYAHOU / GLOBES
leviathan gas drill (photo credit: (Albatross))
leviathan gas drill
(photo credit: (Albatross))
In a sharp setback for the partners developing the Tamar natural-gas lease in the Mediterranean Sea, several Israel Corporation subsidiaries on Monday signed long-term natural-gas supply contracts with Egyptian supplier East Mediterranean Gas Company (EMG).
The companies are Israel Chemicals Ltd., Oil Refineries Ltd. and OPC Rotem Ltd.
EMG shareholder (12.5 percent) Ampal-American Israel Corporation said EMG has signed five gas-sale agreements. It also listed IC Power Ltd. and ICL wholly-owned subsidiary Dead Sea Works Ltd. among the customers.
Ampal said the agreements were for a total quantity of 1.4 billion cubic meters annually for 20 years, with an option to buyers to increase the total quantity up to 2.9 b.cu.m. annually. The total value of the five contracts is $5 billion-$10b. Gas delivery is scheduled to commence next year.
The gas-supply contracts follow the difficulties that the Tamar gas-field developers have been facing lately.
OPC Rotem will purchase 300 million cubic meters to 600 m.cu.m. of gas a year for its planned 440-megawatt power plant. The value of its gas purchases can reach $3.2b.-$4.3b.
Israel Chemicals’s gas-supply contract is through 2030. The company said the contract is in addition to its contract with Yam Tethys, signed in 2008, and the hook-up to the natural-gas pipeline in December 2009. The new contract guarantees gas supplies to the company’s plants, which switched to gas for their electricity production a year ago.
Israel Chemicals subsidiary Dead Sea Works Ltd. will buy 200 m.cu.m. of gas a year from EMG for its power plant planned for Sdom. Israel Chemicals has an option (through March 31, 2011) to buy an additional 530 m.cu.m. of gas for industrial use and power production. The purchase of gas for the new power plant is subject to a decision on its construction and the obtaining of building permits, which are due by June 2012.
Israel Chemicals’s contract is worth $370 million- $460m. through 2030, not including the option, depending on the final terms. The contract includes a floor and ceiling price.
“The switch to natural gas greatly improves the environmental protection of energy production by the plants in the South and greatly reduces the cost of energy,” ICL Fertilizers CEO Dan Chen said Monday. “The new contract is an important step toward guaranteeing Israel Chemicals’s energy supply through 2030.”
Oil Refineries (in which Israel Corp. holds a 37% stake) signed a 20-year gas-purchase contract with EMG for its refinery and for its subsidiaries Carmel Olifins Ltd. and Gadiv Petrochemicals Industry Ltd. Oil Refineries said the switch from heavy industrial oil to natural gas as the company’s primary source of energy would save it $130m. in direct energy costs.
Oil Refineries also expects savings in energy consumption, maintenance costs and improved operating efficiency. The switch to natural gas will also greatly reduce emissions.
The price of the gas will be set by a formula based on the price of oil. It includes a floor and ceiling price and a take or pay commitment for the minimum quantity of gas, in accordance with the mechanism set out in the contract.
Oil Refineries’s contract is worth $1.8b.-$2.9b. over 20 years. The actual amount will depend on the amount of gas purchased, the terms set and price of oil. Delivery will begin when the National Gas Pipeline reaches Haifa Bay, which is scheduled for the first quarter of 2011. Oil Refineries has already completed the installation of the necessary hook-ups to the pipeline and receipt of the gas.
“We continue to invest in activities to strengthen the company,” Oil Refineries CEO Yashar Ben-Mordechai said Monday. “This contract and completion of the switch to natural gas as Oil Refineries’s primary source of energy, together with many other investments, will position the company as one of the leading and environmentally friendly refining and petrochemical companies in the Mediterranean Basin and in compliance with Western European standards. This is a strategic step that meets immediate needs for the rapid transition to natural gas use.”