Agreement to provide Israel Electric Company with 5 billion cubic meters of natural gas over five years.
By RON FRIEDMANnatural gas rig 248.88(photo credit: Courtesy)
The Israel Electric Corp.'s board of directors has approved an agreement to purchase 5 billion cubic meters of natural gas over the next five years from the Yam Thetis consortium for an estimated price of $1 billion, the power company announced Thursday.
Yam Thetis, which is jointly owned by Yitzhak Tshuva's Delek Group, Avner Oil Exploration and Noble Energy Inc, beat out Egyptian rival East Mediterranean Gas (EMG) to win the lucrative tender.
The tender was put on hold for a year after the discovery of natural-gas reserves off the coast of Haifa and because of IEC's emergency plan to build a series of new, smaller power plants.
"The Israel Electric Corp. is converting many of its electric plants to utilize natural gas - both existing plants and plants under construction - and therefore need high volumes of natural gas," said Amit Mor, from Eco Energy, an economic consulting and investment firm that specializes in the energy, environmental and infrastructure sectors.
"It is anticipated that as soon as this year, 30 percent of the electricity consumption in Israel will be derived from power produced from natural gas," he said. "That amount is expected to reach 40 to 45 percent in the coming years."
The natural gas that will be supplied to the IEC comes from the Mary B gas reserve, which is situated off the coast of Ashdod and Ashkelon. Experts believe the new deal will exhaust all the remaining natural gas from the site.
"Most of Mary B's gas deposits are already contracted to IEC and other consumers," Mor said. "This deal is expected to commit the rest of the existing resources."
"No doubt the owners of the Mary B field will continue to be major suppliers to IEC and the Israeli energy market for decades to come, due to their output from the Tamar and Dalit offshore natural-gas reserve sites in the Mediterranean Sea," he said. "In addition, it is anticipated that Egypt, with its vast deposits of liquefied natural gas, will also play a crucial role in supplying natural gas to the Israeli market.
"The deal itself is important because it enables the IEC to switch part of its energy-generating capacity to natural gas. This is a process that the IEC has begun since 2004; they have been buying natural gas from both Yam Thetis and from EMG," Mor said.
"As the demand for electricity in the Israeli market continues to grow, obviously there is a need for more natural gas," said Joshua Yeres, energy and technology analyst for Giza Singer Even, a financial and economic consulting firm. "And that is positive because it is a relatively clean source of energy, and it will enable the IEC to continue phasing out its more-polluting fuel-oil generators and coal-burning plants.
"This transaction is one piece in the whole wider picture, which is very important to Israel, of moving over to natural gas and the ability to be more energy independent in the future."
In January, a large natural-gas reserve was discovered at Yam Thetis's Tamar drilling site, 90 kilometers west of the Haifa shoreline, and in late March additional deposits of natural gas were discovered at its Dalit drilling site, 60 km. west of the Hadera shoreline.
"Since the shareholders of Yam Thetis recently found substantial amounts of natural gas in offshore Israel, this now enabled them to sell some of the gas that was being held at Yam Thetis for future years, having the comfort of knowing that they will be able to sell natural gas from other sources," Yeres said.
Natural gas is the cheapest energy product on the Israeli market. Compared to other fuels such as diesel and coal, it burns relatively cleanly and emits fewer pollutants and greenhouse gases.
Power stations operating on natural gas are relatively cheap; they need relatively little space, and they can be built anywhere, unlike coal-burning power stations that must be built along the shore, taking up valuable land.
The major drawback of using natural gas compared with kerosene or coal is the difficulty and cost involved in its storage and transportation in containers in its natural state.
"There is a major change in the Israeli economy that we are experiencing now, and I believe it is exciting in itself," Yeres said. "We are now experiencing history, as Israel switches over to natural gas and, let's not forget the strategic ramifications of that, vis a vis our ability to now have close natural-gas supplies - whether they be from our neighbors or our own supplies."
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