"A first swallow in Spring," is a how a senior Delek Group Ltd. (TASE: DLEKG) manager described the deal to supply gas from the "Tamar" field to Dalia Energy. Delek is the main partner in the prospect. And indeed, the rises in the share prices of the partners in the prospect on the Tel Aviv Stock Exchange cannot disguise the fact that the deal is a fairly small one.
When the round sum that hit the headlines, $1 billion, is spread over the 17 years supply envisaged in the deal, the result is the modest annual sum of under $60 million. This revenue stream will be very far from gladdening the hearts of those meant to provide the financial closing for developing Tamar, at an estimated cost of over $2 billion.
The customer, too, Dalia Power Energies, is not a strategic customer, for the simple reason that private power production in Israel has been stuck for years, and several skeptics doubt whether private power plants will ever operate here.
Almost the only importance of the deal is that it sets a precedent: for the first time, a business customer has agreed to buy gas from the Tamar prospect.
As reported by "Globes", Delek and its partners are negotiating intensively with a bigger potential customer, Israel Corp. (TASE: ILCO), but the big prize they hope for is a gas supply agreement with Israel Electric Corporation. Undoubtedly, the deal with Dalia Power Energies helps them in the negotiations with Israel's biggest gas consumers.
The energy market expected that the gas produced from Tamar would be sold at a price of around $6 per million BTU, among other things because of the technical complexity of the deep drilling and of transporting the gas from the site, 90km from the Israeli coast. The price agreed in the Dalia deal is estimated $ 5.10 per million BTU, a competitive price, similar to that agreed by competitor EMG in its deal with private power producer Dorad.
Delek tried hard this morning to explain that the price was not low. "The reason that we were chosen is that we are an Israeli supplier, with proven reliability over the years," a senior Delek Group source said, making a dig at the competition. Apart from the jibe, EMG had further reason to be disappointed: the Israel Infrastructure Fund, which owns 10% of Dalia Power Energies, is also a shareholder in the group that imports Egyptian gas. From this point of view, Delek and its partners can portray the deal as a loss by EMG on its home field.
Published by Globes [online], Israel business news - www.globes-online.com - on December 15, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009