Natural Gas Authority seeks equal distribution of Tamar gas

The capacity of the pipeline to Ashdod will be allocated pro rata at times of excess demand.

8 July 12 10:39, Koby Yeshayahou and Amiram Barkat

Natural Gas Authority director Yehoshua (Shuki) Stern has dropped a bombshell. The Natural Gas Authority is doing what the Antitrust Authority and the Public Utilities Authority (Electricity) have not dared to do, and is seeking to oblige the partnerships in the Tamar offshore natural gas project to distribute gas equally to all consumers. This means that those who have signed supply agreements with Tamar, among them Israel Electric Corporation (IEC) and Dalia Power Energies Ltd., will receive only about 60% of the gas they bought, and the agreements with them and others have in effect been reopened.

The big winners from the Natural Gas Authority's announcement are all the gas consumers in the Israeli economy that have not signed agreements with Tamar, whether this is because they are too small, such as medium-size industrial concerns, or because they preferred to sign agreements with EMG, as did Israel Corporation (TASE: ILCO), while the big losers are IEC and other large consumers, such as Dalia.

IEC reported yesterday evening that it had received a draft document from the Natural Gas Authority entitled: "A request to any interested party to put forward their proposal or stance concerning regulation of the use of the capacity of the pipeline from the Tamar platform via the transport system of Yam Tethys Ltd".

The document states that, from the time that natural gas starts to flow from the Tamar reserve in the second quarter of 2013, Tamar will be the sole supplier in the Israeli economy with the ability to provide a continuous supply of gas. The capacity of the pipeline from the Tamar platform to the reception station in Ashdod is limited, and cannot meet total hourly demand expected from natural gas consumers in the coming years, and since the capacity of the gas pipeline is a publicly owned resource, its allocation needs to be regulated.

The document states that the partnerships in the Tamar well (Noble Energy, Avner Oil and Gas LP (TASE: AVNR.L), Delek Drilling and Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L)) will not refuse to sign contracts for the sale of natural gas with consumers seeking to contract with it only because of the fact that this would mean the total quantity of gas meant to pass through the pipeline exceeding its estimated maximum capacity at any given moment at which the aggregate demand from all consumers is greater than capacity.

Distribution of the pipeline's capacity will be on the basis of a formula set out in the document, based on a pro rata principle according to the hourly quantity specified in the contracts with each consumer, except for small marketers and consumers, concerning which there will be special guidelines.

The document also states that excess demand for natural gas will be met, as far as availability allows, through liquefied natural gas (LNG). The extra cost arising from buying LNG will be imposed on all natural gas consumers in accordance with a formula set out in the document, apart from small consumers.

It has been made clear to IEC that the document is a working paper. IEC is examining whether the Natural Gas Authority has the power to impose the provisions set out in the document or to intervene in commercial agreements. IEC says that it will convey to the Ministry of Energy and Water Resources its position on the principles set out in the document, and will use all available legal means to minimize the damage to it expected as a result of implementation of these principles, insofar as they are accepted.

It should be stressed that it is not clear that the Natural Gas Authority's document will be the final word on the matter.

Published by Globes [online], Israel business news - www.globes-online.com - on July 8, 2012

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