* Gas from Tamar offshore field started flowing late March
* Refineries switch to gas from more expensive fuel oil
* Switch offers cost cuts and supply security
By Ron Bousso
LONDON April 10 Natural gas flow from Israel's
new giant offshore field is giving the country's two refineries
a new lease of life, slashing their costs and ensuring supply
Gas from the Tamar field off its Mediterranean coast reached
Israel for the first time on March 30 and the refineries several
Once energy poor, the new field is set to meet Israel's gas
needs for decades, and eventually turn it into an exporter.
"The Israeli gas is much cheaper, much more accessible and
in enormous quantities," Rony Solonicof, chief economist at the
Bazan Group, which runs one of Israel's refineries, told
This abundant and secure source of natural gas ends years of
supply concerns following constant disruptions from Egypt,
Israel's previous intermittent supplier and declining output
from the Yam Tethis offshore field.
"The Tamar start-up represents a considerable relief for
Israeli energy security and, with a time-lag, costs, after the
country saw successive increases in the cost of energy use as a
result of the sporadic nature of Egyptian gas imports from
February 2011 (and the ultimate cancellation of that deal),"
Catherine Hunt, analyst at IHS, said.
The gas bonanza will boost the tight economics of the Bazan
Oil Refineries in the northern city of Haifa and the
Paz refinery in Ashdod, south of Tel Aviv as they no
longer require the more expensive fuel oil to power their
Israel refineries first started using natural gas in 2005.
In the case of Bazan, the switch back to natural gas is set
to shave 2 percent off total costs. For Paz, it will reduce
costs by an estimated 1.5 percent.
The gas field, located 90 kilometres off Israel's northern
coast, has an estimated 10 trillion cubic feet of gas. It is
guarded by the Israeli army and though facing potential security
risks, is seen as a safe and reliable source of energy.
Egypt suspended gas supplies to Israel last April following
a string of attacks on the pipeline in the Sinai peninsula,
depriving Israel of 40 percent of its natural gas supplies.
At the same time, supplies from Israel's Yam Tethis natural
gas offshore field have gradually depleted in recent years,
further tightening supplies and forcing power plants and
refiners to power their facilities with more expensive and
polluting heavy gasoil.
CHEAP, RELIABLE GAS
Natural gas from the Tamar field costs around $6 per million
British thermal units (mmbtu), around half the cost of gasoil,
according to Solonicof.
That compares to average gas prices of $4 per mmbtu in the
United States, which has seen its prices tumble thanks to shale
gas, and $12 per mmbtu in Europe and over $15 per mmbtu in Asia.
Bazan expects the switch to full gas operation to reduce its
costs by $200 million a year out of total expenses which reached
$9.7 billion in 2012.
"The financial benefit is even bigger when you know that the
(Tamar) gas is much cleaner which extends the life span of the
refining equipment," Solonicof added.
The 197,000 barrels per day (bpd) Bazan refinery exports
around a quarter of its output to eastern Mediterranean
countries. In January, it started a 25,000 bpd cracker, which
turns feedstocks into refined products, at an investment of $517
million. The company reported a $46 million net loss in 2012.
For Paz, Israel's largest distributor of refined products,
the gradual switch to natural gas will cut costs for its 95,000
bpd Ashdod refinery by more than $50 million per year, according
to trade sources.
Paz reported a loss of ILS 166 million ($45 million) in 2012
in its refining segment due to extended maintenance delays.
Total refining costs for the year reached ILS 13.8 billion.
In April 2012, Paz signed a 15-year supply agreement with
the operators of the Tamar field which the company estimated to
be worth a total of $700 million.
According to a Paz spokeswoman, gas supply disruptions in
2012 cost the company around ILS 150 million, "partly because of
the need to replace the gas with more expensive alternatives"
such as diesel and fuel oil.
(Editing by James Jukwey)