BG Group at centre of $4bn deal to supply Gaza gas to Israel
The British energy firm is set to agree terms of a $4bn, 15-year deal over
gas discovered off the Gaza coast

Steve Hawkes and Sonia Verma in Jerusalem The Times (UK) May 23, 2007
http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article1826739.ece

BG Group is poised to agree the terms of an historic $4 billion deal to
supply Palestinian gas to Israel from a discovery off the Gaza coastline,
The Times has learnt.

Representatives from the British energy company are scheduled next week to
meet a team of negotiators chosen by the Israeli Cabinet to thrash out a
15-year contract. Despite the violence in Gaza, the Israeli Foreign Ministry
has insisted that it wants to conclude a deal "as soon as possible".

It would enable BG Group, the former owner of British Gas, to begin to
develop an offshore field that is the Palestine Authority's only natural
resource. The move would mark an unprecedented milestone in Middle East
relations. There would be enough gas to provide 10 per cent of Israel's
annual energy requirement, and the Palestinians would receive total
royalties of $1 billion. Sources in the Middle East note that the sensitive
talks could be derailed at any time by the acute political tension that
surrounds the deal.

However, Nigel Shaw, the BG Group vice-president in the region, said: "We
are making progress. There are commercial issues to be completed and we also
require bilateral agreement between the two governments to get this project
across the line. But this is a chance for greater economic prosperity in
Palestine and that is only good for peace."

The signing of heads of terms would mark an amazing turnaround, given the
political and legal disputes that have dogged the project since BG Group
discovered the Gaza Marine field in 2000. It holds one trillion cubic feet
of gas, the equivalent of 150 million barrels of oil, equivalent to a large
North Sea field.

Six years ago Ariel Sharon, the Israeli Prime Minister at the time, vowed
that Israel would never buy gas from its neighbour. The project also was
held up by a legal challenge in the Israeli Supreme Court to establish
whether the Palestinians had any right to the discovery. Last year BG Group
was close to signing a deal to pump the gas to Egypt before Tony Blair
intervened and asked the company to give Israel a second chance. Three weeks
ago the Israeli Cabinet approved a proposal by Ehud Olmert, the Israeli
Prime Minister, to buy gas from the Palestinian Authority. The Cabinet
recognised the need for new energy sources to feed Israel's rapidly growing
economy.

Under BG Group's plans, gas from the field would be transported by an
undersea pipeline to the seaport of Ashkelon. Although Israeli insiders are
confident of a deal, significant questions remain, not least how payments to
the Palestinian Authority will be made. Israeli defence authorities want the
Palestinians to be paid in goods and services and insist that no money go to
the Hamas-controlled Government.