The Israel Electric Company last month signed a contract with British Petroleum to import three super-containers of liquid natural gas (LNG), TheMarker reported. The purchase was intended to bolster the current gas supply from the Tamar reservoir, and to help the IEC cope with high demand for natural gas outside the single pipeline from Tamar to Ashdod. So far not much of a news story — except the BP gas was purchased at a rate of $4.9 per heat unit, including the cost of transportation and regasification — this while IEC is paying the “homegrown” Tamar monopoly $5.7 per heat unit.
Moreover, according to TheMarker, two weeks after the contract had been signed with BP, Mediterranean LNG prices sank to $4.7 per heat unit, so that, theoretically, IEC could have saved even more. Meanwhile, IEC is locked in a contract with Tamar forcing it to purchase most of its gas at what today are exorbitant rates, because that contract is based on take-or-pay, meaning IEC either takes the gas from the monopoly or pays the monopoly a penalty.
According to the IEC 2015 reports, it paid Tamar an additional $115 million because it reduced its consumption from the monopoly by 2%. Meanwhile, IEC usage of imported LNG has increased in the last quarter of 2015 by 19%, but because of the sinking prices in the region its cost was down by about $10 million.
Way to negotiate a deal, Mr. Netanyahu.
The BP deal involves three super-containers, each carrying about 36,500,000 gallons of liquid gas (the equivalent of 21,660,000,000 gallons of gas). IEC has been leasing the containers from US-based Exelerate for the past three years; they are capable of reverting the liquid to gas again and pumping it into the Israeli system via a special float off the coast of Hadera in central Israel. Only two months ago, IEC has extended its Exelerate contract for another two years, at $70 million annually.
BP won an overall IEC bid for 16 shipments altogether of LNG, for an overall cost of $800 million.
The Tamar contract is also linked to the US index + 1%, which means the gas from “Israel’s own” field goes up each year regardless of market rates, and by 2021 Israel will pay the monopoly $6.5 per heat unit, which by then could be an astronomical rate.
Again, what a head for business you have, Mr. Netanyahu.
Incidentally, while the Israeli government has been boasting about the economic renaissance promised by the new gas discoveries, the Israeli industry is shying away from investment in transforming itself from petroleum to natural gas fuel. Israeli industrialists are among the fastest movers on the planet, so that the reason for their sluggishness must mean they have read the Netanyahu government gas contracts and decided to pass.