BG is pulling out of Israel following the failure of negotiations with the Israeli government for the sale of natural gas from the offshore Gaza Marine field. While BGs announcement to pursue other options for the Gazan gas formalizes a decision made last month, the UK company is also relinquishing its Med Yavne exploration license offshore Israel and closing its office in Tel Aviv, spelling the departure of the only large international energy firm in the countrys upstream.
Today we are closing down our Israel office, BGs Policy and Corporate Affairs Manager for the Gaza Marine project Michael Barron told MEES on 8 January. The seven local staff are being made redundant. As part of ending our business presence here, we are also relinquishing the Ashkelon exploration license. But we will retain the Gaza Marine license. The Ashkelon, or Med Yavne, license, located 30km offshore, is operated by BG which holds a 39% interest in partnership with four Israeli companies led by Isramco. A gas discovery was announced there in November 1999, but the quantities are small and its development only makes sense as part of a joint venture. BG will give its share of the license to the other partners as part of the companys decision to leave Israel, which takes effect at the end of this month.
But the fate of the Gaza gas field is far more significant, with its estimated reserves of 1 trillion cubic feet (350 bcm) and the much needed revenue that it could generate for the Palestinian National Authority. Gas production from Gaza Marine was due to begin in 2010, but that start-up date was directly linked to the sale of gas to Israel, casting uncertainty on when it will now be developed. The negotiations with Israel collapsed in early December 2007, when it became clear to BG that the gaps obstructing progress on several key issues were unbridgeable. The negotiations were focused on guaranteeing future gas supplies to Gaza, assurances that the revenue generated would end up in the right Palestinian hands, and reaching an agreement on the gas sales price. Exacerbating the situation, rival Israeli energy consortium Yam Thetis lodged a petition with Israels Supreme Court to try and block the governments plans to buy BG gas, on the grounds that they were uncompetitive (MEES , 7 January).
Weve always appreciated that its a very complex area to be working in, Mr Barron said. But we are disappointed, after 18 months of a lot of effort on our part. Gaza Marine is a highly-charged political project, with this latest round of negotiations involving intervention by the UK government, and the Israeli cabinet voting on the issue in April 2007 which, though definitively approved, was opposed by three ministers. Reflecting the size of the political obstacles to be overcome, Israels government started restricting fuel supplies to the Gaza Strips only power station in October last year, as part of its attempt to limit cross-border attacks by Hamas, which controls the Palestinian territory. Electricity supplies in parts of Gaza are now being suspended for up to 12 hours a day as a result of the fuel supply cuts, according to local reports published this week.
Egypt Option Boosted
BGs announcement has significantly raised the likelihood that gas from the offshore Palestinian field will be sent to Egypt, although this option is not an easy one either, and sources close to the project have suggested that opening talks with the Egyptians may be a negotiating tactic. Egypt is looking for enough gas for a second 5mn tons/year LNG train at Damietta. The sharp growth in the countrys own domestic requirements, as well as the extension of the Arab Gas Pipeline (AGP) project through Jordan and Syria, underlines the need for Egypt to source extra gas supplies, and make BG a better offer.
The Egypt option is still in the very preliminary stages, and BG has not yet contacted the government to initiate discussions, Mr Barron said, although the companys talks with Cairo in the past about the sale of Gazan gas reached an advanced stage before negotiations with Israel resumed. There are also political considerations here. The UK firm will need to cooperate with the Israeli military, which retains security control over Gazan waters, in order to develop the Palestinian field and send the gas to Egypt. They could deny us the necessary permits and approval, which would make life very difficult, Mr Barron told MEES .
Never Say Never
Meanwhile, Israels incentives to secure a deal on Gaza gas remain strong, and the government is thought to have been genuinely surprised by BGs decision. The countrys rapidly growing economy and limited gas production is increasing the need to secure future energy supplies. Dorad Energys agreement with the East Mediterranean Gas Company in December to buy 0.7 bcm/year of Egyptian gas from 2010 to supply the power station it is constructing at Ashkelon was something of a breakthrough in this respect (MEES , 24 December 2007).
While the UK firm has drawn a firm line under the current round of negotiations, it says it will continue to monitor developments in the Israeli energy market and is keeping its office in Ramallah open. Were not saying never, Mr Barron said. But its going to require some pretty big changes from Israel. They need to adjust their position in line with the global energy markets, and especially the rise in gas prices.
Copyright MEES 2008.
