Electric Corp. urgently seeking new gas supplier

Needs 5-month stopgap until Israeli gas starts flowing.

Needing to fill the energy void left by the Egyptians canceling the sale of natural gas to Israel, the Israel Electric Corporation is trolling the world for a new source. The IEC has published an international tender for purchase of imported liquefied natural gas, hoping to start buying as much as $700 million to $850 million worth on December 1, 2012.

Gas drilling rig

Gas drilling rig

The plan is for up to 16 huge LNG tankers, each holding 130,000 cubic meters of LNG, to dock at a Cypriot port, where the gas would be unloaded onto a vessel the IEC would lease from the American firm Excelerate Energy. This ship would unload at a new offshore gateway some 10 kilometers off the coast near Hadera. This $130 million buoy is now under construction by the Italian firm Micoperi, and is supplied by the Norwegian firm APL. Government-owned Israel Natural Gas Lines is overseeing the project, as well as the construction of the network of natural gas pipelines and the transport of gas across the country.

The winner of the tender will commit to supplying two ships a month for five months. This is a relatively short period of time for such a tender; original expectations were that it would run at least two years. But the five-month cut-off matches forecasts that natural gas will start flowing in April 2013 from the Tamar offshore gas field. The IEC would have an option to extend the LNG contract for up to six more ships of gas through 2013.

The first shipment would most likely come from Excelerate itself, though the IEC board still has not approved the leasing deal with the American company. The world’s largest LNG shippers are expected to participate in the tender, including energy giants such as BP, Chevron, Gazprom and Spain’s Repsol. Ten companies answered the IEC’s original request for information processing at the start of the year.

Participating firms were required to prove their capability to meet the tender’s conditions, including ownership of LNG tankers able to carry out ship-to-ship transfers of gas with Excelerate’s special gas storage ships. The deal with Excelerate is being conducted without a tender as the American firm is the world’s only one with the necessary floating gas transfer capabilities.

The Energy and Water Resources Ministry’s Natural Gas Authority recently announced that the ship will be leased for four years, but the contract can be cut short, though that would increase the lease’s annual cost.

The price of LNG in the Mediterranean basin stands at $14-$15 per million BTU. The state is expected to add another one or two dollars per million BTU to cover the cost of the gas transfer ship leases, estimated at $80 million per year. The final price of the LNG is expected to fall between $15 to $18 per million BTU.

This is a relatively high price compared to what the IEC will be paying the partners in the Tamar natural gas field: $5.30 per million BTU. But the lack of Egyptian gas, which cost the IEC $4.50 per million BTU, together with the rapid depletion of the Tethys Sea offshore field, has left the LNG option still more attractive than the other possibilities for generating electricity – diesel fuel and heavy fuel oil, both of them dirty and priced about $25 per million BTU.

No decisions have been made about the availability of LNG for firms other than the IEC. The Natural Gas Authority has published the agenda for the public hearing on the matter, which includes the importation of 26 shiploads of LNG. The first 10 are intended for the IEC only. The next 10 were to be subject to a separate international tender in which the IEC would have priority if needed. The remaining six tanker loads of LNG were to go to the private sector based on a tender. While final arrangements are not clear, it is clear now that the Gas Authority’s original agenda has changed.

 

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By Avi Bar-Eli and Itai Trilnick

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