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The start of natural gas deliveries from the Tamar offshore reservoir could be delayed by up to a year if the multibillion dollar gas delivery contract between the Tamar partners and Israel Electric Corporation (IEC) (TASE: ELEC.B22) is not signed this month, believe energy industry sources.
The Tamar field is due to come online in mid-2013, but the contract that will allow development of the reservoir has not yet been presented to IEC's board of directors. If the contract is not signed by the end of the month, the foreign banks financing the project will stop the flow of funds, which could seriously delay work.
Sources inform ''Globes'' that IEC CEO Eli Glickman has not yet decided whether to accept the terms agreed on by IEC and the Tamar partners - Noble Energy Inc. (NYSE: NBL), Delek Group Ltd. (TASE: DLEKG), Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L), and Alon Natural Gas Exploration Ltd. (TASE: ALGS) - because he is afraid of a public backlash over the price.
The possibility that gas deliveries from Tamar could be delayed is greatly worrying the Ministry of National Infrastructures, in view of Israel's gas shortage, which it expects will worsen during 2012 as Yam Tethys's Mari B reservoir is depleted. The shortage this year, caused by stoppages in Egyptian gas deliveries, has already caused a 15% hike in electricity prices.
The Tamar-IEC gas delivery contract could be the deal of the decade in Israel's energy market, amounting to $15 billion. The negotiations began two years ago and were effectively completed several weeks ago when the parties settled the key outstanding issues.
The final price of the gas is not yet known, but is higher than set out in the letter of intent between the parties in January 2010. IEC and the Ministry of Finance are worried that the higher price will be seen by the public as surrender to extortion by the gas exploration companies, headed by Delek controlling shareholder Yitzhak Tshuva, and as proof that the companies abused their power as Israel's primary gas supplier.
In July, the Public Utilities Authority (Electricity) locked IEC when it announced that it would not recognize the full premium paid to gas supplies due to their monopoly power.
IEC said in response, "The company is in talks, and it does not disclose details while they are in progress."
Signing the IEC contract is critical for continued development of the Tamar reservoir, which will cost an estimated $3 billion. The partners have already invested $1.2 billion in the project, whose deadline for completion is the second half of 2013.
Delek, Isramco, and Alon Gas's share of Tamar's development cost is $1.9 billion, which they are financing with loans from foreign banks. The financing agreements stipulate that the partners must submit a signed contract with IEC to the banks by the end of the year as a condition for receiving the main part of the financing.
Isramco signed a long-term $880 million financing agreement with Deutsche Bank AG (NYSE: DB; DAX: DBK), and unless the company presents the bank with a signed contract by the end of 2011, continued financing will be terminated.
Delek Group (through Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling LP (TASE: DEDR.L) and Dor Alon Energy in Israel (1988) Ltd. (TASE:DRAL) unit Alon Gas have taken a $430 million bridge loan from HSBC Holding plc (LSE: HSBA; HKSE: 005; NYSE, Paris: HBC) and Barclays Bank plc (LSE: BARC), which the companies plan to repay at the end of the year as part of a long-term $1.1 billion loan. Presenting the IEC contract is a binding condition for refinancing the loan.
In the absence of bank loans, Tamar's partners would have to delay immediate expenses, including cancelling the leasing of a crane and towing rig for the Tamar production platform at a cost of $300 million. Cancelling the order would delay the project by several months, because orders for this equipment must be placed months in advance.
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