Palestinians in talks with int'l co to develop Marine gas field

Gaza power station Photo: Reuters

The gas produced from the reservoir will be used to operate the power station in Gaza and another 450-megawatt power station to be built in Jenin.

Almost 20 years after it was discovered, the Palestinian Authority (PA) will try to develop the Gaza Marine natural gas reservoir located off the coast of the Gaza Strip by itself, sources inform "Globes." In the past, the PA asked Israel for the use of the state's gas transmission infrastructure, and the matter is currently being discussed. The sources add that the owners of the rights in the reservoir are negotiating with an international drilling operator to develop and operate the reservoir.

According to the plan, the gas produced from the reservoir will be used to operate the power station in the Gaza Strip and another 450-megawatt power station slated for construction in the Jenin area. In addition to local consumption, the Palestinians are trying to find customers for their gas in the region in order to reach a minimum amount of demand for gas that will justify development of the reservoir. Costs of developing gas reservoirs have recently fallen, thereby making it easier to carry out plans.

As of now, the rights to the reservoir are divided between the Palestinian Investment Fund (PIF), the PA's investment arm, and CCC, a Greek-Lebanese company controlled by the Khoury family, a partner with British Gas for years.

Sources inform "Globes" that the reservoir developers recently contacted Israeli government agencies and asked them to consider the possibility of future use of gas transportation facilities. The Palestinians plan to connect the reservoir to the coast using facilities in the Ashkelon area and use the Israeli pipeline to transmit the gas to Jenin. Another possibility is Palestinian use the Yam Tethys drilling platform owned by Delek Group Ltd. (TASE: DLEKG) and Noble Energy Inc. (NYSE: NBL), which has been abandoned in the sea.

A report by the World Bank estimates the cost of developing the reservoir at $1.2 billion, but this could be lowered significantly if Israel allows the use of its infrastructure. The report, published on June 30, 2017, focuses on the possibility of developing an independent Palestinian energy sector. The writers of the report recommended development of the reservoir as an important source of revenue for the PA. Economists estimate that taxes on revenue from sales of gas from the reservoir could provide the PA with $2.7 billion over 25 years. The royalty rate in the PA is 12.5% of sales, the same as in Israel, in addition to 25% corporate tax. The World Bank believes that the feasibility of developing the reservoir still depends on signing gas sale agreements with an off-taker customer for at least 1.5-2 BCM annually. The power station in the Gaza Strip and the power station in Jenin are planned to jointly consume less than 1 BCM annually. The Gaza Strip power station, the only one actually operating in areas controlled by the Palestinians, is being operated on diesel fuel because it is not connected to a natural gas pipeline.

The World Bank says that converting the Gaza Strip power station to natural gas will save $45-62 million a year. The Gaza Strip power, station is owned by CCC, is being utilized only partly, among other things because of the high price of diesel fuel.

Israel Electric Corporation (IEC) has been providing two thirds of the electricity consumed in the Gaza Strip and all of the electricity consumed in the West Bank in recent years. The PA is about to begin construction of a 450-megawatt power station in the Jenin area and is planning another power station in the Hebron area. These power stations are due to begin consuming 0.5 BCM of gas a year in 2020, rising to 1 BCM a year in 2030. In 2014, the PA signed an agreement to buy gas from the Israeli Leviathan gas reservoir for a total of $1.2 billion, but the agreement was canceled a year later.

British Gas, which obtained a drilling license in the area, discovered the Marine reservoir in 2000 36 kilometers west of the Gazan shore. Located beneath water 600 meters deep, the reservoir contains an estimated 32 BCM of gas - half the amount of gas in the Israeli Karish and Tanin reservoirs.

In 2011, Prime Minister Benjamin Netanyahu offered PA chairperson Mahmoud Abbas for joint development of the Marine reservoir together with the nearby Israeli Noa reservoir. The offer followed the damage caused to the gas pipeline in the Sinai and the ensuing shortage of gas in Israel but went unanswered by the Palestinians.

Several years ago, Adv. Yitzhak Molcho tried to persuade IEC to negotiate the purchase of gas from the Marine reservoir, but the company refused because of the high price demanded by British Gas. British Gas was sold in 2016 to oil giant Royal Dutch Shell, which decided to unload its 55% rights in the asset. After unsuccessfully trying to find a buyer for the rights, British Gas announced in March that it was waiving its rights for with no payment and returning them to the PA.

The Israeli and Palestinian interest: Stop reliance on IEC

Residents of the Gaza Strip suffer from frequent power outages. The sole power station operating there supplies only half of the electricity consumed in the Gaza Strip and is frequently out of use due to a severe shortage of gasoline and diesel fuel. When it is out of operation, the sole source of electricity in the Gaza Strip is power lines from Israel, which supply electricity for only four hours a day. If developed, natural gas from the Marine reservoir can supply the Gaza Strip's energy needs, which is also in Israel's interest.

Meanwhile, early this month IEC announced the signing of a historic agreement with the PA in which the PA's huge debt for electricity consumption will be repaid and responsibility for collecting debts will pass from IEC to the Palestinian electricity authority. In 2016, the PA's electricity authority' debt for electricity consumption totaled almost NIS 2 billion.

Up until now, IEC was unable to actually collect debts from Palestinian customers. Connection between them was through the PA, which accumulated huge debts over the years. The 15-year agreement signed gives the Palestinian electricity authority full responsibility for supply and distribution of electricity. To secure future debts and payment of past debt, the PA will provide bank guarantees to IEC. The amount of the agreement is estimated at NIS 2.8 billion a year.

Published by Globes [online], Israel business news - - on June 21, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Gaza power station Photo: Reuters
Gaza power station Photo: Reuters
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