IEC invites proposals for LNG imports

The crisis over Egyptian gas has prompted the Israel Electric Corp. to accelerate plans to import liquefied natural gas.

The worsening crisis over Egyptian natural gas has prompted Israel Electric Corporation (IEC) (TASE: ELEC.B22) to pick up the pace for its plans for importing liquefied natural gas (LNG), publishing a request for proposals (RFP) for LNG imports. The deadline is next month. The RFPs will include quotes for LNG tankers that can offload their cargoes to the LNG buoy that Israel Natural Gas Lines Ltd. is building 10 kilometers offshore from the coal pier at Israel Electric Corporation's (IEC) (TASE: ELEC.B22) Hadera Power Station. IEC consumers are footing the bill for the NIS 500 million buoy.

The buoy is due to begin operating by the end of the year, and will supply up to 2.5 billion cubic meters (BCM) of natural gas a year, compared with 2.1 BCM of gas a year supplied by Egypt at its peak. However, LNG costs 2-3 times more than the price IEC was paying for Egyptian natural gas. The Far Eastern price of LNG has risen to $16 per million BTU, compared with $5 per million BTU that IEC paid for gas purchased from East Mediterranean Gas Company (EMG). Israeli electricity consumers will likely finance the difference.

Egypt is prepared to resume gas deliveries to Israel, but at a new price and under new terms, in the words of Egyptian Minister for Planning and International Cooperation Faiza Abul Naga yesterday.

According to Egypt's Middle East News Agency (MENA), Naga said that before the gas supply contract was terminated, Egypt notified Israel five times that it was not meeting its financial obligations under the old contract. However, belying her remarks, the cancelled agreement was not between Egypt and Israel, but between EMG and Egyptian Natural Gas Holding Company (EGAS). EMG has apparently not paid EGAS an estimated $65 million.

According to an investor publication published by EMG shareholders Ampal-American Israel Corporation (Nasdaq: AMPL; TASE:AMPL) last year, EMG owes $200 million for the construction of the gas pipeline from El Arish in Sinai to Ashkelon. EMG was due to distribute its first dividend when the attacks on the EGAS pipelines began in February 2011.

Yesterday, Egyptian Minister of Electricity and Energy Hassan Younis said that the gas designated for export to Israel would be directed to the domestic market instead. The statement comes against a worsening shortage of natural gas in Egypt, which experts think is the real reason for the termination of the gas supply agreement with Israel. Egypt's natural gas consumption is rising by 8% annually, and doubled to 42.5 BCM in 2001-09. This is seven times the amount of gas consumed by Israel. The rapid growth in Egyptian gas consumption is fueled by subsidies and rapid development of the gas industry.

Egypt's proven natural gas reserves are estimated at over 2,400 BCM, but the development of new reserves has lagged behind the growth in demand. The uncertainty caused by Egypt's political and economic crisis has exacerbated the problem as it has driven away foreign companies and investors.

Published by Globes [online], Israel business news - - on April 24, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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