Sources: IEC CEO Eli Glickman has ordered the fuel administration to open talks with Leviathan's partners, subject to converting the Hadera power station to gas.
Israel Electric Corporation (IEC) (TASE: ELEC.B22) is preparing to buy natural gas from the Leviathan field. At stake is a multibillion dollar deal for its Hadera power station, which will only go ahead if IEC decides to convert the power station to gas. A decision is due within days, subject to the project being financially worthwhile.
Sources inform ''Globes'' that IEC CEO Eli Glickman has ordered the utility's fuel administration to open negotiations with Leviathan's partners, Noble Energy Inc. (NYSE: NBL), Delek Group Ltd. (TASE: DLEKG), and Ratio Oil Exploration (1992) LP (TASE:RATI.L). The amount of gas needed to operate the Hadera power station is estimated at 2 billion cubic meters (BCM) a year, amounting to $600 million. Given the usual 15-year gas purchasing contract, a deal would be worth $9 billion.
The talks will reportedly begin after the High Court of Justice rules on the petitions against the government's gas exports decision. Leviathan's partners say that if the petitions are accepted, it will not be worthwhile to develop the gas field.
Gas flow from Leviathan to Israel is slated to begin in 2016, according to the development plan that the partners submitted to the Ministry of Energy and Water Resources in 2012.
Meanwhile, IEC has increased its gas purchases from the Tamar field, owned by Delek, Noble Energy, Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L), and Alon Natural Gas Exploration Ltd. (TASE: ALGS) from 3.5 BCM a year to 5 BCM, after the IEC board approved the exercise of an option in the contract signed with the Tamar partners in December 2011. IEC has now committed to buying 78 BCM of gas from Tamar, but the updated figure does not include gas for the Hadera power station, because the gas conversion project has not yet been approved.
The gas conversion project comes as the Hadera power station's first four generators are nearing the end of the life spans. The power station has six generators. The generators, installed in 1980, were Israel's first coal-fired generators. The proposed NIS 1.9 billion gas conversion project calls for the installation of four 350-megawatt gas turbines. The power station's other two turbines will continue to use coal, following the installation of scrubbers to remove pollutants.
The Ministry of Energy wants IEC to convert the power station to gas, in order to reserve coal-generated electricity for emergencies. But the project is controversial on economic grounds. "Globes" has reported that there are strong internal objections at IEC against the proposed project. The gas-powered turbines will have very low energy efficiency, raising concern that they will rarely be used and the return on investment will be very low. IEC will apparently not approve the project without a guarantee that the turbines will operate a minimum number of days a year to make them worthwhile.
Published by Globes [online], Israel business news - www.globes-online.com - on July 11, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013
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