Friday, January 09, 2009

Israel's Gaza Gas Grab

British Gas, Israel to freeze Hamas out of $4b. gas deal

Israel and the British natural gas company BG Group Plc will move ahead with controversial plans to drill for natural gas in the Gaza Marine field, despite Hamas's takeover of the Gaza Strip last month, The Jerusalem Post learned on Thursday.

The two sides have arrived at an "understanding" that will transfer funds intended for the Palestinian Authority's Palestinian Investment Fund into an international bank account, a BG source told The Post.

"Both Israel and BG intend that until the PA is able to remove Hamas from power in the Gaza Strip, the money will be held in an international bank account," the source said. "Neither side wants the money to go to fund terror-related activities."

According to the plan, BG will drill for natural gas 36 kilometers off of the Gaza coast, in an area that was designated as PA territory following the Oslo Accords. The gas will then flow four km underwater in a pipeline 850 meters below the surface to an Ashkelon refinery. The field, which BG purchased in 2000 and to which Hamas now claims rightful ownership, contains 1 trillion cubic feet of natural gas worth an estimated $4 billion, with Israel set to become the sole consumer of the resources.

"I cannot deny that Israel and BG are making attempts at arranging a payment plan to accommodate the PA [and completely exclude Hamas]," an official in the Infrastructure Ministry said, while adding that along with officials from the Finance Ministry, negotiations are still underway, despite the shaky security situation in Gaza.

Ronen Moshe, the Infrastructure Ministry spokesman, claimed, however, that he doesn't know anything about an "understanding" between BG and Israel regarding payments to the PA, but did say that right now the two sides are negotiating over the price that Israel will pay for the gas. Similarly, the spokesman's office in the Finance Ministry claimed no knowledge of any "understanding" between Israel and BG concerning the transfer of funds to an international account, while the Prime Minister's Office said nothing new has happened since the cabinet decided earlier this year to form a negotiating team to meet with BG representatives.

According to the original bilateral arrangement between Israel and the PA, some 60 percent of the revenues from the sale of the gas will go to BG; 30% will go to BG's partner in the deal, the British energy company CCC, and 10% of the revenue, estimated to be worth hundreds of millions of dollars a year, is to be designated for the PA's Palestinian Investment Fund, under the auspices of the office of Palestinian Authority President Mahmoud Abbas.

"However, now that the PA is no longer in control of the Gaza Strip, or the marine area off of its coast, Israel, should it purchase the gas, would no longer be making payments to the PA, but rather would have to pay Hamas," explained the BG source.

Israel is obviously opposed to the money ending up in the hands of Hamas, and British law mandates that should a British organization enter into any sort of negotiations with a terrorist group, that organization's leaders will be brought to trial and may be sentenced to jail, the source said.

"Therefore, Israel and BG have come to a new understanding of transferring the money into an international account - allowing the deal to go through," he said.

The deal appears to exclude Hamas from receiving any of the revenues from the gas sales.

Hamas, meanwhile, intends to ask for changes in the agreement with BG, Bloomberg reported two weeks ago. "It is unreasonable that the owner of the gas, Palestine, gets 10% only," Mohammed al-Madhoun, the director of Hamas leader Ismail Haniya's office, told the Palestinian Information Center, a Hamas Web site. "The government has no problem cooperating with the British gas company but only after modifying some points of the 1999 contract."

Earlier this week, Finance Ministry Accountant General energy coordinator Uri Shusterman confirmed that a dispute over prices is the official cause for the delay in the signing of a contract with British Gas, and that statement was the first comment by a government official about the negotiations with BG Group.

"Despite the disagreement, the government is determined to buy gas from the company's reserves offshore from Gaza, as an alternative to Egyptian gas," said Shusterman.

He added that Israel is seeking to diversify its supplies of gas, which it now buys domestically and also from Egypt, in order to ensure a competitive market. He noted that the country planned to buy 1.5 billion to 1.8 billion cubic meters of natural gas per year from BG over 12-14 years.

"It's critical that Israel come to an agreement now with BG, because the longer it waits to sign, the more likely it is that gas prices are going to rise even further and the less likely it is to begin receiving gas at its desired 2011 target date," said BG.

Once Israel and British Gas arrive at an agreement, the project will take three years to complete. "Right now there is nothing in the water, as soon as we can, we need to build a gas rig, get the drill ready and build the pipeline," said the BG official, adding that he hoped the two would finish the negotiations and sign an agreement within the next week.

"There are already clear intentions as to how to handle the Hamas situation, and plans have already been worked on regarding the construction of the pipeline, now we just need to finalize a price," he said.

Israel began talks with BG in February 2006 and said in May of that year that it expected to buy 1.5 billion cubic meters of gas from BG annually starting in 2009. Soonafter, BG broke off talks with Israel and said that it preferred bringing gas to Egypt to be liquefied and then shipped by tankers to the US, Europe and the Far East. The talks resumed in July 2006 and in April of this year the cabinet voted 21-to-three to grant a negotiating team formal permission to hold talks with BG on the purchase of gas from the Gaza Marine field.

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