Tamar gas field warnings materialize

Infrastructures Minister Uzi Landau warned recently of the consequences of delays.

The threats that Noble Energy Inc. (NYSE: NBL) CEO Charles Davidson warned about at the "Globes" Israel Business Conference 2010 yesterday, with regard to the Tamar gas field have apparently materialized sooner than expected. In a notice to the Tel Aviv Stock Exchange (TASE) after the market closed yesterday, Tamar partners Delek Group Ltd. (TASE: DLEKG) units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) warned of a possible loss of a major customer for gas from the project. Their partner Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) issued a similar notice later.

The warning materialized this morning, when Israel Corporation (TASE: ILCO) announced that its subsidiaries Israel Chemicals Ltd. (TASE: ICL), Oil Refineries Ltd. (TASE:ORL), and OPC Rotem Ltd. had signed with East Mediterranean Gas Company (EMG).

The notice said, "Following… the letter of Minister of National Infrastructures Uzi Landau to Prime Minister Benjamin Netanyahu and Landau's speech to the Israel Business Conference, we hereby announce that… a major potential customer for the Tamar project is about to decide to purchase the natural gas it needs from Egyptian supplier EMG, instead of buying gas from the Tamar project."

The notice adds, "The national infrastructures minister has asked the prime minister to intervene immediately to prevent any delay in the project development, which is liable to cost the Israeli economy dearly."

Tamar's partners said that due to the possible loss of the customer, "The Israeli partners in the Tamar project have asked the minister of finance and minister of national infrastructures in writing to, among other things, to limit the application of the Sheshinski committee and exclude current holdings (including Tamar), as has been repeatedly promised in the past."

The notice goes on to say, "If such a contract is signed, it is liable to cause significant harm to the Tamar project and widespread damage to the Israeli economy."

"We state that, due to the possible application of the Sheshinski committee recommendations on existing holdings, and due to the lack of business certainty and credibility that they have caused, the partnership is reviewing the continuation of its investment in the development of the Tamar project, including the scale and date of additional financial commitments.

"What is stated above is liable to have negative effects on the project, including the timetable for completing it and the delivery of natural gas from it, and on expected revenue from gas sales. The partnership states that it intends to regularly review what is stated above in view of the circumstances that emerge.

The moment of truth has arrived

Israel Corporation (TASE: ILCO) is the large energy company whose possible choice of a foreign natural gas supplier Landau warned about in his letter to Netanyahu, a copy of which was obtained by "Globes".

Landau wrote, "The moment of truth has arrived, and procrastination is no longer possible." He warned, "None of us can explain to the Israeli public why the Israeli government supports Egyptian gas in an unprecedented quantity and prefers it to Israeli gas."

When the Sheshinksi committee published its interim recommendations, Landau asked Netanyahu to urgently intervene, arguing that the recommendations had repercussions beyond pure economics. In response, Netanyahu asked Landau to wait until the end of the month, but Landau rejected the request in Friday's letter.

"Your intervention and decision on the issue of gas production from Tamar has to be made today. Israel Corporation is about to decide on the purchase of the gas it needs from a foreign supplier. We're talking about a loss that could grow in view of the fact that other large gas consumers are liable to follow suit, and expand purchases from the foreign supplier at Tamar's expense. The reason for this is the prevailing uncertainty about the ability of Tamar to supply gas on schedule. These figures put a further burden on the establishment of Tamar, especially in the immediate term. Furthermore, none of can explain where the expected tax revenues have vanished and why Israel did not rush to develop the potential of its economic waters, especially given the uncertainties characteristic of the Middle East."

As for his wish to exempt Tamar from the Sheshinski committee recommendations, Landau said that Minister of Finance Yuval Steinitz had told the media in the past that he intended to do so. "The people of Israel need, first and foremost, a reliable, cheap, and clean supply of electricity, and a necessary condition of this is a regular and safe supply of natural gas from the Tamar field as soon as possible without disruptions or breakdowns. With the Leviathan discoveries, the Israeli public will benefit greatly from tax revenues.

"It is in your hands to decide whether the State of Israel will develop its natural gas sources and enjoy energy independence from gas supplies, or not... This decision cannot wait until the end of the month, as you wrote me in your letter, but has to be made by the end of the week, and even by the end of today."

Tamar was supposed to supply 67% of the gas to Israel Corp. and its subsidiaries.

Published by Globes [online], Israel business news - www.globes-online.com - on December 13, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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