Israel's Tamar Hints at Cutting Prices

For the first time ever the Tamar Partnership has hinted at the possibility of lowering the price of natural gas it sells to its biggest Israeli customer, Israel Electric Corp (IEC). As part of an updated resources and discounted cash flow (DCF) report, the company said that gas sold to the IEC may be reduced in price by 12.5% ​​on July 1, 2021, the date for re-opening talks on price clauses.

According to the sales and purchase agreement, each of the parties may demand at this point of time a reduction or increase of the gas price by up to 25%. The partnership estimates that the price of gas may fall by only 50% of the maximum allowed in the contract. The partnership does not expect a price drop at the second opening point of the contract in 2024.

Today IEC pays about $6/mn Btu and the price is expected to go up to over $7/mn Btu in the next few years. Other Israeli customers pay $4.7/mn Btu.

The DCF report was published by Delek Drilling, which holds 22% of Tamar, and Tamar Petroleum, which holds 9.25% of Tamar, which it acquired last year from Delek Drilling.

The publication of the updated DCF is aimed at enabling Tamar Petroleum to borrow $560mn to pay for 7.5% of Tamar's rights held by Noble Energy.

IEC's gas prices are set in a long term agreement which stipulates an annual increase. When energy prices collapsed in 2014, gas prices in Israel kept going up.