Authority warns that if changes aren’t made to plan, natural gas prices will rise 30% and lead to an increase in electricity prices.

Avital Lahav
Published: 08.12.15

Israel’s Electricity Authority claimed Wednesday that if changes are not made to the natural gas plan, it will lead to a hike of up to 30 percent in the price of natural gas, costing the Israeli public NIS 13 billion by 2029.

To rectify that, the authority proposes to reopen the natural gas agreements signed between the private gas companies and the suppliers starting from 2014 on. In addition, they recommended setting the prices of the natural gas reservoirs to be sold (Karish, Tanin and some parts of Tamar) in accordance with the revised contracts, so that they would not be sold at exorbitant prices, the brunt of which the public would bear.

The authority said it does not understand why these recommendations were not included in the gas plan.

The Electricity Authority’s professional opinion was released after accusations arose in the political system that Prime Minister Benjamin Netanyahu and Water and Energy Minister Yuval Steinitz were working to remove the chairman of the authority over her objection to the natural gas plan.

Primarily, the Electricity Authority proposes to cancel the clause in the contract with the gas providers that links the gas price to the US Consumer Price Index, with an addition of one percent. The authority claims linking the price is not justified and will cause an undue increase in the price of gas in the future. Instead, the authority proposes to link Israel’s gas prices to gas prices in the world.

The authority also proposes to reopen all of the agreements signed after 2014 and set a price ceiling of $5.8 per unit of heat.

In addition, the authority said that since the existing contacts for the sale of the gas fields Tanin, Karish and parts of Tamar will lead to a sharp increase in the gas price in the future, the gas fields’ high profitability is assured. This profit will be reflected in the price that the reservoirs will be sold to the new owners, and the new owners will try to pass this on to the public through gas prices.

“If indeed a more appropriate, lower price is set in these new agreements, the sale of the Karish and Tanin reservoirs will be based on lower gas prices of approximately 21 percent by the end of the decade, compared with the average gas price which set in the plan’s outline,” the authority stated, “thus, suppliers who purchase the reservoirs can offer lower gas prices at the time of the opening of the agreements without prejudicing recouping the investment.”

Gas deal to bring 6% increase in electricity prices

The Electricity Authority also recommends curbing the obligations in the existing signed contracts to purchase additional quantities of gas from the Tamar reservoir. The authority argues that this obligation means that even when new reservoirs enter the economy, they will not be able to compete with Tamar, as electricity producers will be obligated to purchase such quantities that they would not have the need for the gas offered by new players.

The recommendation places high importance on lowering the price in the contracts signed since 2014 mainly because the price that Israel Electric Corporation and several of the private power producers pay will be opened for renegotiation in the year 2021. According to the recommendation, lower price levels in the contracts of private manufacturers will allow all electricity producers to negotiate from a lower reference point, and so arrive at a cheaper price.

The authority argues that the current agreement would lead to Israel’s gas prices to incresase 6 percent by 2029, and that if their proposal is accepted it will increase by only 1.75 percent. The recommendation also points out that “the authority is aware that making a governmental decision on the issue of natural gas involves various factors, not only related to the prices and terms of the gas agreement, however, it attaches great importance to suggesting this outlook to the decision makers on the subject prior to the final decision being taken.”,7340,L-4690302,00.html