BG nixes plans to sell Israel natural gas

Differences on key issues over Gaza field will never be bridged, BG says.

drilling feat 88 224 (photo credit: Courtesy of Zion Oil and Gas Company)
drilling feat 88 224
(photo credit: Courtesy of Zion Oil and Gas Company)
The $4 billion worth of natural gas that BG Group Plc controls off the Gaza Strip coast will not be sold to Israel as the company officially ended negotiations on Thursday, citing insurmountable differences on several key issues. "We came to a point where we had not been making any progress and it was clear that we were not going to close the differences that we had regarding key issues," a high-ranking BG official told The Jerusalem Post. "We have been negotiating throughout the fall and the issues of price, the amount of gas to be supplied to the Gaza Strip and a funds flow arrangement with the Palestinian Authority had not gotten any closer to being solved." The estimated 1 trillion cubic meters of gas is located approximately 36 kilometers off of the Gaza coast, in an area that was designated as PA territory following the Oslo Accords. The British energy giant purchased the rights to the field in 2000. According to the original bilateral arrangement between Israel and the PA, some 60 percent of the revenues from the sale of the gas would have gone to BG; 30% to BG's partner in the deal, the British energy company CCC; and 10% of the revenue, estimated to be worth hundreds of millions of dollars a year, was to be designated for the PA's Palestinian Investment Fund, under the auspices of the office of Palestinian Authority President Mahmoud Abbas. The deal became complicated in June when Hamas took control of the Gaza Strip and subsequently declared itself to be the rightful owners of the gas field. Had Israel and BG reached an agreement on price, the two would have still had to construct a plan that would exclude Hamas from the deal since none of the parties wants to be involved in funding the terrorist organization. Price, however, was the primary sticking point in Israel's failure to reach an agreement with BG. In September, BG officials accused the Israeli government of dragging its feet in the ongoing talks over the purchase of natural gas from the company's Gaza Marine gas field and said it only would wait another "two to three months" before proceeding with its alternative plan to sell the gas to Egypt. "No one can accuse us of being impatient - we have been waiting for the Israelis to make a serious offer, but our patience can only be stretched so far," BG Vice President Nigel Shaw told the Post at the time. The longer the government took to complete the deal, the larger the price gap became between what BG was asking and Israel was offering for the gas. Although the company only publicly broadcast its decision to halt negotiations Thursday, BG had informed the Israeli government of its decision in early December, according to a BG spokesperson. Government officials, however, requested that the company wait to go public with the news until Thursday, the day of a scheduled High Court ruling on the petition that BG faces from Yam Thetis, seeking to block the government's plan to buy BG gas. That decision, however, will not come out until sometime next week, the BG spokesperson said. Yam Thetis contends the government is seeking to negotiate the purchase of additional natural gas without first opening a tender, but rather negotiating solely with BG, said Delek Drilling LP, one of the partners in Yam Thetis, in a statement earlier this year. "The petition asks that the court rule that all negotiations or any contact made at any time between government representatives and British Gas International Ltd. concerning the purchase of natural gas were done without proper authority and against the law," Yam Thetis added. Regardless of the court's ruling, however, BG seems to have permanently closed the door on selling the gas to Israel. "Right now there is no possibility that we are going to re-eneter negotiations with Israel," the BG official said. "We are disappointed that it did not happen - it was a large waste of our time and effort, and now we will consider our other options, including piping it to Egypt." BG has surveyed a pipeline to Egypt and is ready to proceed with selling the gas to Israel's southern neighbor, the company said. Israel began talks with BG in February 2006 and said in May of that year that it expected to buy 1.5 billion cubic meters of gas from BG annually starting in 2009. Soon after, BG broke off talks with Israel and said that it preferred bringing gas to Egypt to be liquefied and then shipped by tankers to the US, Europe and the Far East. Talks resumed in July 2006 and, in April of this year, the cabinet voted 21-to-three to grant a negotiating team formal permission to hold talks with BG on the purchase of the gas. BG's decision to withdraw from negotiations comes at a time when the Infrastructures Ministry is pushing to increase the country's natural gas supply. Earlier this week National Infrastructures Minister Binyamin Ben-Eliezer held talks with government officials in Kazakhstan and Turkey over entering into long-term natural gas deals.