Rising discontent among private natural gas consumers and private power plants owners in Israel from EMG's (East Mediterranean Gas Company) "unreasonable price demands", which some Israeli journalists have even described as "intentional discrimination for the benefit of Israel Electric Company", has brought British Gas back to the forefront of Israel's potential gas suppliers.

Following years of on-and-off negotiations between Egypt and Israel, the long-delayed plan for Egypt to supply natural gas to Israel was finally signed last year, in August 2005.

The agreement allows for EMG (an Egyptian-Israeli consortium between Egyptian General Petroleum Corporation and the private Israeli company Merhav) to supply 1.7 BCM of natural gas a year to the Israel Electric Company (IEC) for a period of 15 years.

The price set in the agreement between EMG and IEC, $2.75 per million BTU (British thermal unit), has brought private power plants entrepreneurs in Israel to seek a similar gas-supply agreement with EMG, which will enable them to compete successfully in the Israeli electricity market.

Thus when these private Israeli gas consumers found out that EMG plans to charge private gas consumers much more than it charges IEC, in fact more than $3.5 per million BTU ($4.25 according to some publications), they were very disappointed.

Private Israeli gas consumers were willing to pay EMG 20 percents more than what EMG was planning to charge IEC for its natural gas supplies but EMG refused.

Private Israeli gas consumers fight back

The disappointed Israeli private gas consumers, supported by many leading financiers and large electricity consumers in Israel - who hoped for a more competitive electricity market in Israel - have thus far operated against EMG mainly in the political sphere.

They initiated strong pressure on ministers and senior officials at the Israeli Ministries of Infrastructure and Finance, urging them to come to the private gas consumers' help.

Similarly, report newspapers in Israel, leading businesspersons in the country now expect that their newly appointed Prime Minister, Ehud Olmert - said to be known for being attuned to the needs of Israel's business elite - will come to their aid.

But recently, private power-plant owners in Israel have initiated another form of action against EMG's, as said, "unreasonable price demands". A consortium of private power-plant owners in the country is being organized with an aim to break, what they call "EMG's monopoly" on natural gas supplies to Israel.

"Unless we want the Israeli electricity market to be dominated by one supplier", told one private, power-plant owner to sympathetic Israeli journalist, "EMG's monopoly on Israel's gas supplies must be broken".

This new move is seem to be backed by several leading businesspersons and key economic institutions in Israel as well as by senior officials at the Israeli Ministries of Infrastructure and Finance, and thus many in Israel expect it to materialize in the very near future.

The consortium plan is to establish a separate gas-supply contract with British Gas for the supply of 2 to 2.5 BCM of natural gas. Hence, after it has been pushed aside by EMG's lucrative offer and its government-backed deal with IEC, British Gas has suddenly returned to the forefront of Israel's possible gas suppliers.

A few leading businesspersons and institutions in Israel, "frustrated from the lingering fruitless discussions with EMG", as one Israeli newspaper has put it, have actually already initiated talks with British Gas.
 
British Gas comes to the forefront

These talks, which were mainly aimed at learning British Gas' price demands, seem to have been rather successful, as the Israelis who stood behind them were later quoted in the Israeli media saying that "British Gas will be willing to supply us with natural gas for a very close price to that offered by EMG to IEC".

In fact British Gas has already offered (in 2000) to supply Israel with natural gas, from its Gaza offshore fields, for a price of $2.3 to $2.5 5 per million BTU, but all of the British Gas' offers were refused by Israel due to "security reasons".

However, in light of the ongoing pricing crisis in the Israeli gas market and more important in light of official invitations from the Israeli Ministry of the Prime Minister as well as the Israeli Ministries of Finance and Infrastructure, senior officials from British Gas have decided to reopen negotiations with Israel and met, in Israel, with several private electricity producers, interested in buying natural gas from British Gas.

British Gas, which has strong interests in the Egyptian market, has previously stated that it will not sell natural gas to Israel and that it will transfer its gas from the Gaza offshore fields to Egypt. But British Gas' executives are now, again, convinced of the Israeli seriousness and determined not to loose this promising business opportunity.

British Gas' real interest in striking a deal with the Israelis was reignited after the Israeli Government has officially informed it that the Israeli market has an annual 1.5 BCM purchasing potential. The implication of such a deal, however, is that EMG might be "stuck with" its gas supplies, apart from what it had already committed to sell to IEC.

The warming up of relations between Britain's Prime Minister, Tony Blair, and the newly appointed Israeli Prime Minister, Ehud Olmert, must have also played a role in the warm up of relations between the Israelis and British Gas.

But ironically, it was mainly EMG, and its lingering negotiations with private gas consumers in Israel - after striking the deal with IEC - which has brought British Gas back to the forefront of possible gas suppliers to Israel.

© 2006 Mena Report (www.menareport.com)