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    Jordan, Israel Set Oil-Indexed Gas Price


The crude-based contract assumes a wide range of prices and comes with US payment guarantees.

by: Ya'acov Zalel

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Jordan, Israel Set Oil-Indexed Gas Price

The Jordanian National Electric Company (Nepco) is to pay the Leviathan Partnership a Brent crude-based border price between $5.65/mn Btu and $11.00/mn Btu, according to the 92-page gas sales and purchase agreement between the two sides. The price will be $6.0/mn Btu when Brent is between 50-$70/barrel. The price includes the $0.30/mn Btu transportation cost that the partnership pays Israel Natural Gas Lines.

The $10bn, 15-year agreement was signed in 2016 and leaked to the Arabic media. The agreement was first reported by The Marker, a business daily, and the details were not denied by Leviathan Partnership.

The gas price will be $5.65/mn Btu at up to $30/b and $11.00/mn Btu at $320/b or above. But for the likeliest range, prices between $70/b and $320/b are calculated according to certain formulas. For example when Brent price is at $75/b, the gas price would be $6.25/mn Btu; and when Brent is at $120/b, the gas price would be $8.26/mn Btu.

Noble Energy, which handled the negotiations on behalf of Leviathan Partnership, was aware of the financial risks of the agreement stemming from the unstable political and security situation in the region.

In order to eliminate those risks the American administration has pledged to pay for any missing payment by Nepco from the annual assistance budget it gives Jordan. That goes to show that the agreement was more about politics and geopolitical manoeuvring than about the economy.

The $10bn agreement which was vigorously pushed through by the American administration during the Obama presidency, and was signed in 2016, was lobbied, amongst others, by former US president Bill Clinton, who had close relations with the Democratic administration at the time.

In the agreement Nepco was also not allowed to reduce its gas purchase from Leviathan by more than 20% even if natural gas was found in Jordan. If Jordan terminates the agreement in the first five years it will have to pay a $1.5bn penalty; it will have to pay $800mn for termination up to ten years; and $400mn after 10 years.

Leviathan is expected to start natural gas sales to Jordan by the end of the year. However in Jordan there is still a strong public and political opposition to the agreement which was signed three years ago and enabled the development of Leviathan. Public opinion in Jordan has since become more hostile to the agreement.