Three key issues have led BG Group (NYSE: BRG; LSE: BG) (British Gas) to break off negotiations for the sale of natural gas to Israel: the price, complicated logistics, and the large number of small consumers.
British Gas sources said today that Israeli decision-makers had hoped in vain that the company would agree to sell natural gas at an unrealistic price. The sources said British Gas was a company that operated according to business principles. “There’s no chance that the company will agree to the price levels offered in the Israeli economy. The prices are not realistic,” they said.
The decision was taken at the highest level at British Gas. The company said today that it had commitments with Egypt, and would sell gas from its reserves offshore from Gaza through Egypt to international markets.
British Gas can reportedly sell its natural gas at $7-10 per million British Thermal Units (BTU), compared with $3.10 per million BTU that Israel was offering.
Gina Cohen, a consultant for Consolidated Contractors Company (CCC), BG Group’s partner in the Gaza venture, told “Globes”, “Israel missed the train. British Gas tried to sell gas to Israel for years at $2.30 per million BTU. A deal with Israel can only happen with a single large power producer or with state guarantees.”
Energy sources said today that British Gas’s withdrawal from an agreement is a serious failure that will affect Israel’s energy market, mainly because of the dearth of natural gas suppliers.
Sources believe that the present crisis will mean that British Gas’s reserves in Gaza will remain in the earth for a long time. They added that in end, British Gas will sell to Israel Electric Corporation (IEC) when the reserves of Yam Thetis, controlled by Delek Group Ltd. (TASE: DLEKG) run out.
British Gas said its decision was final, and it could not imagine that Israel would undermine or act against it.
Published by Globes [online], Israel business news - www.globes.co.il - on May 17, 2006
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006