British firm BG Group is set to sell its 90% stake in a gas field off the shore of the Gaza strip after Israel has moved to prevent the field being developed, reports Bloomberg.
The company hopes to raise $70-80 million from the sale, a huge discount to the underlying gas asset value as the political situation between Israel, the Palestinian Authority and Hamas – which runs Gaza – worsens.
BG Group has left the exploration and field development project covering the entire marine waters off the Gaza coast – known as Gaza Marine– in abeyance since at least 2008, when the company shut its Israel office after a year of negotiations with Israel about commercializing the gas.
The legal status of the custodianship of the gas fields is now unclear, and BG Group had been liaising with the Israeli government over field development, particularly after 2006. Tel Aviv is alarmed at the prospect of gas revenues flowing to the Hamas-controlled government of the strip, and supply talks from Gaza to Israel are thought to have broken down over this issue.
The move by Israel comes despite the state having given administration of the field, which lies 36km offshore Gaza, to the Palestinian National Authority in the 1990s.
British Gas (BG Group) and its partner, the Athens-based Consolidated Contractors International Company (CCC), were then granted oil and gas exploration rights in a 25-year agreement signed in November 1999 with the Palestinian Authority, and after drilling two exploration wells in 2000 declared commercially recoverable gas reserves of 1.4 trillion cubic feet, worth several billions of dollars. In 2002, an outline Development Plan for sub-sea development and a pipeline to an onshore processing terminal was approved by the Palestinian Authority.
The Palestine Investment Fund, whose sole shareholder is reported by the fund to be the Palestinian people, would have been due a massive windfall under the contract if production was agreed, as the fund holds substantial option rights to claim a stake in the project.
Israel’s need for improved gas security is acute. Its current supply line from Egypt – the source of 40% of Israel’s gas – has been repeatedly attacked by Bedouin in retaliation for non-payment of bribes, and is deeply unpopular with many Egyptians, being widely seen as a stitch-up deal below market rates struck by deposed president Hosni Mubarak.
In reaction, Israel is ramping up its own offshore exploration program.
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