New gas deal set to lower electricity prices, but some say it’s not enough
Israelis can expect their electricity costs to drop, thanks to a deal with the consortium that owns the Tamar natural gas fields that will save the state hundreds of millions of shekels, according to the Israelis. Israel Electric Corporation.
The agreement will take effect retroactively on July 1, subject to approval by the antitrust commissioner and the Israel Electricity Regulatory Authority. But while the deal guarantees cheaper rates for years to come, some have questioned whether the state-owned IEC could have gotten an even better deal by going into the open market.
The price of gas has a direct impact on the pockets of Israelis as it is used for 75 to 80% of all electricity. IEC spokeswoman Dalia Bodinger said the new deal would reduce electricity bills paid by consumers.
“The company believes this is an excellent and responsible deal that will save hundreds of millions of people and drive for less. [consumer] rate, ”she said.
The initial contract, signed in 2012, allowed the parties to reopen the contract in 2021 and renegotiate the price up to 25%. Another window will open in 2024, when an increase or decrease of up to 10% will be allowed.
The new deal is considerably cheaper than the original and the terms and conditions have improved.
While under the old agreement the CIS paid up to $ 6.36 per unit of heat for the full amount ordered each year, the new agreement specifies that the 21 billion cubic meters (3 billion cubic meters cubic meters per year) that it has already committed to purchase until 2028 will cost $ 4.50 per unit of heat. This price will drop to $ 3.95 per unit of heat (without indexation, see below) on any additional amount up to 16 billion m3 and will be tendered for any higher amount.
An IEC source speculated that around 13 bcm more might be needed based on the tender.
The revised agreement also requires the Tamar partnership to set aside 13 billion m3 for the period 2028 to 2030, should the state need it, at the non-indexed flat-rate price of $ 3.95 per unit of heat.
IEC President Yiftach Ron-Tal said: “In addition to the utility’s success in setting a lower and better price for the benefit of the Israeli public, this is an economic milestone. at the national level which will directly contribute to lowering the cost of living and the growth of the State of Israel.
The Tamar consortium said the new deal added $ 2.2 billion to the $ 3.4 billion already received from the CIS.
The CEI’s payment terms to the Tamar partnership were originally set in 2012, when the country badly needed the Tamar reservoir to become operational. Israel’s only operating reservoir at the time, Mari-B Yam Tethys, had just dried up and gas imports from Egypt had been halted by sabotage of pipelines by Islamist militants. The country was forced to import expensive fossil fuels from elsewhere.
This contract committed the IEC to pay 3.5 bcm per year until 2028 (it was lowered to 3 bcm in 2019), whether gas is needed or not, at a price determined by a very controversial mechanism, which will continue to increase. apply, although under the new deal, annual price increases will be capped at 1.25%.
Expressed in US currency, the price was linked to the US Consumer Price Index plus 1% per year until 2019 and minus 1% per year until 2028.
This means that the Tamar consortium’s IEC bills have steadily increased, while global prices have plunged from $ 5.30 in 2013 to $ 6.36 per unit of heat at the end of last year. (The partnership has agreed to lower it slightly for the first six months of this year).
In 2017, the State Controller released a very critical report estimating the conditions would cost the public between $ 820 billion and $ 1.5 billion.
A source from the IEC explained that renewed negotiations have started with each of Tamar’s partners separately and that once the best price has been reached they have continued with the partners as a bloc to further improve conditions.
The partnership with Tamar includes Chevron, with a 25% stake (bought from Noble Energy last year), Delek Drilling (22%), Isramco (28.75%), Tamar Petroleum (16.75%), Dor Gas (4%) and Everest (3.5%). Delek Drilling must sell its stake by the end of the year, in accordance with antitrust rules.
A similar partnership, made up of Chevron (39.66%), Delek Drilling (45.33%), and Ratio Partnership (15%), controls the Leviathan natural gas lease, which started commercial production at the end of 2019.
The IEC agreement with the partners holding the rights to Leviathan ended on June 30 at a price of approximately $ 4.40 per unit of heat. Most of the gas from Leviathan will be exported, and for now everything the CIS will need will be based on today’s spot prices.
Earlier this year, the business daily Globes reported that the CIS was also buying liquid natural gas (LNG) on the spot market at a price average price of $ 3.50 per BTU. (LNG is natural gas cooled to minus 160 degrees).
With gas from the larger Leviathan field destined for export and the smaller Karish and Tannin fields not yet in commercial production, the source said the IEC deal with the Tamar consortium reflects its commitment to ensure energy security and help the government implement its policy of completely phasing out coal by 2025.
But some wondered if the CIS could have gotten a better deal by looking elsewhere.
“The IEC requirement has been around 5 billion m3 per year and it will stay that way. If they want to get 3 billion m3 per year at $ 4.5 and 2.5 billion m3 per year also at a fixed price, the likelihood that they will need much more than all of that is low, ”said Ariel Sawicki, who follows the gas industry for consumers. lobby group Lobby99. “Why didn’t they call for tenders on the 16 bcm? Maybe Leviathan would sell it for less, or an international would sell liquid domestic gas (LNG), of which there is a surplus? Why did they shut everything down by the end of the decade? “
Bodinger, the CIS spokesperson, said the price of $ 3.95 for the additional 16 billion cubic meters was so good that it was decided not to risk a tender which could result in a higher price.
On Thursday, the International Gas Union released its gas price survey for 2021 (see graph on page 36), showing that among gas producing countries, Israel still pays high tariffs.
Lobby 99, a crowd-led political action group, called on the ministries of finance, energy and economics to intervene in the deal and help lower prices further.
“In the case of most natural gas exporters, the price to local consumers is less than $ 4, so if the Tamar partnership sells most of the gas to the CIS at $ 4.5, we will always pay more,” Sawicki said.
But a CIS source pointed to a decision by the Central District Court in June to dismiss a class action lawsuit based on a claim that the Tamar partnership was charging the CIS an unreasonably high price.