IEC renews Palestinian gas purchase talks

Israel Electric Corporation (IEC) (TASE: ELEC.B22) has renewed talks on the purchase of Palestinian natural gas from the Marine field, located 36 kilometers offshore from Gaza. In early December, the IEC negotiating team will meet representative of BG Group plc (NYSE; LSE: BG) (British Gas). Sources inform ''Globes'' that the negotiations are being resumed at the request of Prime Minister Benjamin Netanyahu, via his emissary to the talks with the Palestinian Authority, Adv. Yitzhak Molcho.

BG Group owns 60% of the Marine Gaza license, the Palestinian Investment Fund owns 10%, and Consolidated Contractors Company (CCC), owned by Lebanon’s Houri family, owns 30%. IEC has little enthusiasm for buying Palestinian gas, because its price will likely be much higher than the Israeli gas it buys from the Tamar field. The sources added that IEC previously rejected feelers from BG Group, but that "strong persuasion" by Molcho caused IEC to change its position.

Diplomatic sources in Jerusalem told "Globes" that the initiative is part of the effort to create Israeli-Palestinian cooperation in an area that would benefit both parties. The sources emphasized that the final decision on whether to buy Palestinian gas belongs to IEC, and will be taken on the basis of economic and professional considerations.

IEC declined to comment on the report.

In addition to the diplomatic arguments, the sources involved in the talks told "Globes" that development of the Marine gas field would allow Israel to diversify its natural gas sources and reduce its dependence on the Israeli fields controlled by Yitzhak Tshuva's Delek Group Ltd. (TASE: DLEKG) and its partner Noble Energy Inc. (NYSE: NBL). The remarks were made in the wake of Noble Energy's announcement that it intended to postpone development of the Leviathan gas field by at least one year, because of delays in obtaining the necessary permits from the Israeli governments.

Israel's economy will face a natural gas shortage from the summer of 2015. However, at least three years will be needed to develop the Marine Gaza gas field.

For financial reasons, IEC prefers buying gas to make up the shortfall from the Tamar field, controlled by Delek and Noble Energy. It estimates that Israeli gas will cost 25% less than Palestinian gas, at $1.50 per million British Thermal Units (mmbtu).

Another consideration against a deal with BG Group and its partners is that Hamas controls the Gaza Strip, and is not a party to the talks. Hamas would have no problem frustrating development of the gas field, and the parties would have to pay Hamas not to do so, or seek alternatives, which would raise the cost of the project.

The Marine Gaza field, discovered by BG Group in 2000, has 33 billion cubic meters (BCM) of natural gas, which is enough to meet the needs of the Palestinians in Gaza and the West Bank for 25 years, and Israel's needs for 4-5 years (at current consumption levels). Since the discovery, BG Group has made several attempts to sell gas to IEC, in competition with Yam Thetis (owned by Delek and Noble Energy, and now depleted), and Egypt's East Mediterranean Gas Company (EMG), in which Yosef Maiman was a partner.

The struggle peaked in 2005-06, when then-Prime Minister Ariel Sharon opposed buying Palestinian gas, which then-Minister of National Infrastructures Yosef Paritzky supported. Sharon said that Marine Gaza's Palestinian partner would use proceeds from gas sales to finance terrorism. After ups and downs, the negotiations ended altogether in 2008, when BG Group decided to liquidate its operations in Israel. However, in 2011, Netanyahu initiated a resumption of talks on the development of the gas field and appointed Molcho as his exclusive representative in them.

The decision to renew the talks comes amid international pressure by personalities such as former British Prime Minister Tony Blair, who has argued that development of the gas field will strengthen economic ties between Israel and the Palestinian Authority. Molcho has meticulously only held talks with BG Group, and has no contact with either CCC or the Palestinian Authority.

Published by Globes [online], Israel business news - www.globes-online.com - on November 27, 2013