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BG, PA in gas deal without Israel

Source: United Press 7/21/2005, Location: Africa

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Israel is not expected to participate in the construction of a proposed pipeline transporting Palestinian liquid gas from a gas field on the Gaza coast to El Arish in Egypt. Following recent significant gas discoveries in areas of the Palestinian Authority by British Gas, the Palestinian Authority and Egypt signed a government protocol in early July to arrange the sales of Palestinian gas to Egypt with exports to global markets to be made in the form of liquid natural gas.

Despite the good news for the Palestinians, some industry experts are skeptical of Israel's silence toward the news. Although it is a partner to the Palestinian Authority in a small gas field to the north of the Gaza Strip, Israel has in the past blocked Palestinian gas export and production agreements. While the proposed pipeline project would export Palestinian liquid gas through Egypt, Israel has chosen to buy gas from Egypt rather than from the Palestinian Authority. "Israel has shown that it is not interested in gas, so the preferred channel for use right now is the Egyptian-Palestinian channel," British Gas Israel Country Manager Eric Ludtke told reporters. Palestinian Energy Minister Azzam Shawa said Friday there is a possibility of a swap deal with Israel, involving the supply of Gaza gas in return for electricity.

On July 1, Israeli Infrastructure Minister Binyamin Ben Eliezer and Egyptian Oil Minister Sameh Fahmi signed a separate deal worth $2.5 billion to receive 1.4 billion cubic yards of gas from Egypt for the next 15 years. Under the agreement, a maritime pipeline will transport Egyptian gas to Israel's Mediterranean port of Ashkelon. Although gas from Gaza is the most cost-effective alternative, Israeli Prime Minister Ariel Sharon is opposed to it for political reasons. Industry experts said Israel preferred gas from Egypt to the joint bid made by the Palestinian Authority and British Gas since any cash flow to the Palestinian Authority would end up bankrolling terrorist operations against Israel. The gas deal could assist the struggling Palestinian economy as it seeks statehood. In addition to creating jobs in Gaza, the Palestinian Authority expects to earn $40 million to $45 million in taxes annually from the deal.

The Gaza Marine gas field has a reserve capacity of approximately 1.2 trillion cubic feet and investments for development require $400 million. Test drills five ago discovered gas production economically feasible. The proposed Gaza-El Arish pipeline would supply a minimum of 1.5 billion cubic yards annually for 50 years. If the project goes through, operations could begin in late 2009 or early 2010. .

BG, which first struck gas in this area with its Gaza Marine-1 well in August 1999, has signed a 25-year contract to explore for gas and set up a gas network in the Palestinian Authority. The company is the operator of the exploration license covering the entire marine area offshore the Gaza Strip; BG owns the drilling rights to the fields. Following successful drilling, the Palestinian Authority approved an outline development plan for the Gaza Marine field area in 2002. BG owns a 90 percent stake in the license, which will be reduced to 60 percent after Consolidated Contractors Company and the Palestine Investment Fund exercise their options. .

BG said it also plans to begin test drills in September at the Noa Darom field near the Israel-Gaza offshore border while looking to use the $120 million Yam Thetis pipeline to transport gas to the Palestinian power plant in Gaza, replacing the energy supplied by an Israeli electric company. The field is relatively small with only 3.7 billion cubic yards of gas. Gas usage is projected to substantially slash power production costs in Gaza.

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