Israeli gov't to allow Leviathan gas sales to Gaza

Gaza power station  photo: Reuters

The Ministry of National Infrastructure, Energy and Water Resources has authorized the sale of0.25-0.4 BCM a year.

After almost seven years of attempts by the Palestinian Authority (PA) to import natural gas to the Gaza Strip, it appears that it is really happening. Sources inform "Globes" that intensive secret negotiations between Israel and the PA, led by the Quartet on the Middle East, have taken place in recent weeks for the supply of gas from the Leviathan reservoir to the Gaza Strip power station. The Israel Security Cabinet has agreed in principle to the measure, and the Ministry of National Infrastructure, Energy and Water Resources authorized the Leviathan partners several days ago to conduct negotiations. The Quartet announced that it was willing to pay for a gas pipeline to be laid by Israel up to the border.

The Leviathan partners and Israel National Gas Lines Company did not respond to the report. The 140-megawatts power station, which has been operating since 2003, was constructed by US energy company Enron, and is currently owned by the Houri family. Other partners in the power station are Padico Services and the Palestinian Investment Fund (PIF). The power station, the only one in the Gaza Strip, currently operates partly on diesel fuel purchased by the PA from the Paz Oil Company Ltd. (TASE:PZOL) refinery in Ashdod.

The power station supplies only half of the electricity consumed by the Gaza Strip. The 120 megawatts supplied by Israel Electric Corporation (IEC) (TASE: ELEC.B22)are also not enough. The result is that Gaza Strip residents have no electricity for 16 hours a day.

The situation became even worse following Operation Protective Edge and Operation Pillar of Defense. In Operation Pillar of Defense, for example, an IDF tank bombarded the fuel tanks at the power station, thereby shutting it down. Up until 2010, the European Union paid for the fuel purchased from Paz Oil, but the PA has since borne the full cost of the fuel.

The PA has been unsuccessful in obtaining payment for the electricity it supplies to Gaza Strip residents, and its debt to IEC has been skyrocketing as a result, currently amounting to over NIS 2 billion.

Seven years of negotiations

As early as 2009, Gideon Tadmor, chairman of Delek Drilling Limited Partnership (TASE: DEDR.L) and CEO of Avner Oil and Gas LP (TASE: AVNR.L) until two months ago, met with a representative of CCC at the American Colony Hotel in Jerusalem. The meeting explored the possibility of exporting natural gas from the Tamar reservoir to the power station. Negotiations continued for years, but the Israeli government refused its consent.

Following Operation Protective Edge, which ended in August 2014, the Turkish government offered to station a ship off the Gaza Strip coast to supply electricity to the residents for a new hours a day. Israel rejected the request, however, saying that the Gaza Strip lacked adequate infrastructure for being connected to the ship.

Qatar also proposed a solution for the Gaza Strip electricity crisis. Last September, Qatar announced that it wanted to pay for a natural gas pipeline from Israel to the power station, under the mediation of Mohammed al-Amadi, the head of the Qatari Committee to Rebuild the Gaza Strip, who met a number of times with IDF Coordinator of Government Activities in the Territories Major General Yoav Mordechai.

The Coordination Office for Government Activities in the Territories examined alternatives for solving the electricity crisis in the Gaza Strip. The Office has confirmed that negotiations have made significant progress in recent weeks, and that it willsoon submit its final recommendations.

Meanwhile, it was learned that the Quartet, composed of representatives from Europe, the US, Russia, and the UN, had decided on an intensive effort to promote the measure. The Quartet announced a month ago that it intended to write a report with recommendations for steps leading to a peace agreement between Israel and the Palestinians.

Sources inform "Globes" that Dutch Quartet representativesrecently helda series of meetings with the two sides. A senior Palestinian source familiar with the details of the mattersaid today that the negotiations "had reached the last hurdle," and that a number of meetings had already taken place with Israel National Gas Lines, which is responsible for buildinggas pipelines throughout Israel.

The source added that the Quartet had agreed to pay for pipeline to the Gaza Strip, and that commercial negotiations between CCC representatives and the Leviathan partners would begin in the coming weeks. The Gaza power stations will consume 0.25-0.4 BCM of natural gas, meaning that the deal will be worth $50 million a year.

According to the source, there are plans for enlarging the power station's capacity in the future, which would increase its gas consumption. He added that the PA was planning the construction of four more gas-operated power stations in Judea and Samaria, the first of which is planned for the Jenin area. The Palestine Power Generation Company (PPGC), which owns the Jenin power station project, signed a contract in January 2014 to buy gas from the Leviathan partners.

Under this $1.2-billion agreement, PPGC will buy 4.75 BCM over a period of up to 20 years. In March 2015, following the announcement by then-Antitrust Authority director general David Gilo that he was rescinding the order he had agreed with the gas companies, and following the ensuing stagnation in the Israeli energy sector, PPGC announced that it was canceling the agreement.

Natural gas in the Gaza Strip

The Gaza Strip has one natural gas reservoir Gaza Marine. The reservoir, located 35 kilometers from the Gaza Strip coast, was discovered in 2000 by British Gas (recently acquired by Royal Dutch Shell), which operates it and owns a 60% stake in it. Other partners in Gaza Marine are CCC (30%) and PIF (10%).

The reservoir contains an estimated 32 BCM. Since it was discovered, British Gas has tried to market the gas to IEC a number of times, but the negotiations were unsuccessful.

In 2013, "Globes" revealed that Israel had continued its negotiations with British Gas, designed to examine possibilities of developing the reservoir for the benefit of the Palestinian population. These negotiations produced no agreement due to opposition from Israel and IEC, which preferred to buy Israeli gas. The hopes of the Gaza Strip residents were then directed towards Jordan.

In January 2015, Jordanian Energy Committee Chairman Jamal Gammo announced that instead of buying natural gas from Israel, as agreed in a letter of intent signed by the Leviathan partners and Jordanian Electric Power Company, Jordan would buy gas from Gaza Marine.

The Jordanians announced that they planned to import 1.5-1.8 BCM a year from the reservoir. The parties have not yet signed a binding agreement, and the reservoir remains below deep waters.

Unresolved issues

Despite progress in negotiations between Israel and the PA, a number of unresolved issues remain. One is the route of the pipeline. Planning such a route can take considerable time; approval of a National Outline Plan alone could take three years.

Construction of the pipeline is expected to take three more years. According to a Ministry of National Infrastructure, Energy and Water Resources source, if everything goes as planned, the statutory procedures for the pipeline can be completed within 18 months, and its construction can also be shortened to 18 months. In any case, he reminds us, gas from Leviathan is not expected to begin flowing before late 2019.

Another unresolved question is the source of the gas. The Ministry of National Infrastructure, Energy and Water Resources source says that it is still possible, although less likely, that the gas for the power station in the Gaza Strip will come from the Gaza Marine reservoir. In this case, a gas pipeline will be built from the reservoir to the receiving station in the Eilat-Ashkelon pipeline facility in Ashkelon, from there to the Israel National Gas Lines system, and only then to the Gaza Strip power station.

Published by Globes [online], Israel business news - www.globes-online.com - on March 3, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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Gaza power station  photo: Reuters
Gaza power station photo: Reuters
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