Tel Aviv–Subsidiaries of conglomerate Israel Corp are to buy Egyptian natural gas in a 20-year deal worth between US$5 billion and US$10 billion that adds to uncertainty over the future of Israel's own Tamar gas development.
The total quantity covered in the contracts with East Mediterranean Gas (EMG) is 1.4 billion cubic meters (bcm) annually for 20 years with an option to the buyers to increase the amount up to 2.9 bcm annually, one of the shareholders in EMG said on Monday.
EMG, which sells Egyptian gas to Israel, competes with gas produced off of Israeli shores in various groups led by Texas-based Noble Energy.
Noble Chairman and CEO Charles Davidson said at a conference in Tel Aviv on Sunday a proposal to raise the Israeli government's tax on gas discoveries creates uncertainty around the schedule and financing of the Tamar prospect, the world's largest gas find in 2009.
Infrastructure Minister Uzi Landau said at the conference it was crucial to develop Tamar on time because Mari-B, the only Israeli gas field in production, would be depleted by 2013, leaving Israel dependent on foreign gas.
According to a statement from the Israeli partners in Tamar, Landau sent Prime Minister Benjamin Netanyahu a letter stating that a central potential customer of the Tamar project was about to decide whether to purchase gas from EMG and urged Netanyahu to intervene to prevent delays in the development of Tamar.
Shares in the Israeli partners in Tamar–Delek Group and its subsidiaries Avner Oil and Delek Drilling, as well as Isramco–were down between 3.4 and 3.8 percent on Monday.
The EMG contracts are with Oil Refineries, Israel Chemicals, OPC Rotem and IC Power.
Oil Refineries, Israel's largest refinery, estimated the value of the gas it would buy from EMG, including the option, at between US$1.8 billion and US$2.9 billion. The company estimated the switch to natural gas at its plants would save it over US$130 million a year.
OPC Rotem, which is 80 percent owned by Israel Corp, plans to buy gas worth US$3.2 billion to US$4 billion for the 440 megawatt power plant it intends to build.
The deal is for 0.3 bcm a year, amounting to half of the plant's energy consumption, and the deal is conditioned upon the company completing financing for the plant by 31 January.
Fertilizer and specialty chemical maker Israel Chemicals (ICL) said it will buy natural gas from EMG until 2030 in a deal worth between US$370 million and US$460 million.
This is in addition to an agreement signed in 2008 to buy 2 bcm of Israeli natural gas through 2015. ICL's plants were connected to the gas distribution network in 2009.
ICL, the world's sixth-largest producer of potash, will buy 0.2 bcm of gas a year from EMG for a power plant it intends to build in the southern Israeli town of Sodom. It has an option to buy an additional 0.53 bcm, which is not included in its current estimate of the value of the deal.
IC Power received an option to buy 0.3 to 0.6 bcm annually for a 440 megawatt power plant it is considering building.
EMG is owned by Egyptian businessman Hussain Salem, Egypt Natural Gas Co, Thailand's PTT, Israel's Merhav Group, Ampal-American Israel Corp and American businessman Sam Zell. Ampal, which owns 12.5 percent of EMG, said gas delivery will begin in the first or second quarter of 2011.
