Two months after the announcement by Greek company Energean of its plans for development of the Karish and Tanin natural gas reservoirs, Minister of National Infrastructure, Energy, and Water Resources Dr. Yuval Steinitz is unveiling his plan to encourage the development of small and medium-sized gas reservoirs. The plan will be brought to the cabinet for approval towards the end of the month. The Ministry of National Infrastructure, Energy, and Water Resources, Ministry of Justice, Antitrust Authority, Israel Tax Authority, and Ministry of Internal Affairs Planning Administration prepared the plans.
Under the plan, the government will invest NIS 100 million in infrastructure for connecting the gas pipeline of the small and medium-sized reservoirs to the national gas transportation system, including aid in the necessary planning processes. This involves laying an undersea pipeline 10 kilometers off the Hadera shore to the area in which the National Outline Plan for building gas handling platforms has been approved.
In addition, the Public Utilities Authority (electricity) will recognize 50% of the costs of the gas purchased by private electricity producers from the small and medium-sized gas reservoirs, compared with 25% of the costs of gas purchased from Tamar and Leviathan. The Public Utilities Authority (electricity) thereby hopes to encourage the electricity producers to buy gas from Tanin and Karish.
Another part of the plan is NIS 10 million in subsidies for the purchase of gas-powered trucks and buses. The Ministry of National Infrastructure, Energy, and Water Resources says that the subsidy is likely to be provided for dozens of vehicles. Assuming that the prices of gas-powered buses and trucks are around NIS 500,000, and given the fact that the cost of gas-powered vehicles is 10-15% higher than that of gasoline-powered vehicles, an average subsidy of NIS 100,000 is likely to cover the excess cost and assist the purchase of 100 buses and trucks.
A clause likely to satisfy Energean concerns the mutual guarantee among the reservoirs, which will provide security in the supply to potential customers, who are naturally concerned about relying on a new and unproven player that has not yet guaranteed that the field will be developed.
Still another element in the plan is establishing a mechanism for mutual backup between the various reservoirs in case of a malfunction in one of them.
To Energean's disappointment, the plan does not include a commitment by Israel Electric Corporation (IEC) (TASE: ELEC.B22) to diversify its natural gas sources, similar to its commitment to such diversification in the purchase of coal, for the purpose of ensuring the purchase of 3 BCM a year. Such purchases are essential in order to raise the financing for the development of the Karish and Tanin reservoirs this year, as provided for by the plan. The Ministry of National Infrastructure, Energy, and Water Resources explains that this section was not included in the plan because IEC does not need additional gas, and should therefore not be forced to make unnecessary purchases.
Following the publication of the plan, Steinitz said that it "enables the Karish and Tanin reservoirs to compete on equal terms with the Leviathan and Tamar reservoirs for the signing of new natural gas contracts, to the benefit of the local economy, and encourages the development of new small reservoirs in Israel's economic waters. This plan is part of the Ministry of National Infrastructure, Energy, and Water Resources' policy of encouraging oil and gas exploration in the Mediterranean Sea and the entry of new players into the natural gas sector, which will generate competition and break the natural gas monopoly in Israel."
Published by Globes [online], Israel Business News - www.globes-online.com - on March 14, 2017
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