A drop in pressure in the Yam Tethys natural gas reservoir has reduced production and the flow of gas to Israel, specifically to Israel Electric Corporation (IEC) (TASE: ELEC.B22). Sources inform ''Globes'' that Noble Energy Inc. (NYSE: NBL) notified the Ministry of Energy and Water Resources today that it has been forced to reduce gas production at Yam Tethys's Mari B well. Noble Energy and Delek Group Ltd. (TASE: DLEKG) jointly own Yam Tethys.
Noble Energy cannot estimate how much production at Mari B will be reduced, and it is waiting for the results of engineering tests. Yam Tethys is Israel's only natural gas supplier, following the disruptions in Egyptian natural gas deliveries. Although Egyptian gas flow resumed last week, it is only in very small quantities.
The latest reduction in gas deliveries by Yam Tethys will force IEC to further increase its use of diesel to generate electricity. Diesel use sharply raises electricity rates. IEC has already said that it will need an additional NIS 10 billion this year to purchase diesel, and is therefore demanding an immediate 30% rate hike.
Acting Ministry of Finance director general Doron Cohen compelled a rate hike of 5-6% a year, spread over three years.
A further reduction in gas deliveries is liable to again raise IEC's demands for an electricity rate hike. Yam Tethys's other customers are also liable to be affected, and company officials will meet the customers in the coming days to try and explain the severity of the problem.
To meet the demand for natural gas, Minister of Energy and Water Uzi Landau ordered the development of the Noa reservoir and Pinnacle area, both near Yam Tethys and owned by Delek and Noble Energy, to be expedited, in order to bring them on line this summer.
The direct reason for the reduction in gas production at Yam Tethys is the drop in pressure in the reservoir as it is depleted. Yam Tethys, located 30 kilometers offshore from Ashkelon is pumped using compressors.
Blame the Ministry of Environmental Protection
Israel's energy market blames the Ministry of Environmental Protection for the faster than planned depletion of Yam Tethys. For the past three months, the ministry has refused to allow IEC to use diesel and fuel oil, and ordered Yam Tethys to maximize pumping from the reservoir to up to 2-3 times the daily average.
A Ministry of Energy official once told "Globes" that the Ministry of Environmental Protection had "slaughtered Israel's only remaining gas reservoir".
Ministry of Environmental Protection director general Adv. Alona Sheffer-Karo said in response that the ministry's mandate was to protect public health and reduce its exposure to the emission of contaminants.
It was made clear in today's meeting that a further reduction in gas production at Yam Tethys now is critical to ensure supplies to the Israeli economy this year, especially during peak demand period in summer, and until gas deliveries from Tamar begin in 2013. Noble Energy said that reducing production at Yam Tethys is a slower but more stable rate will reduce the risk of future disruptions in gas deliveries.
Published by Globes [online], Israel business news - www.globes-online.com - on January 23, 2012
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