Announcement

**donsaeid** · 05-13-2007, 02:11 PM

Palestinians prepared to assure Israel of gas supply

The Palestinian Authority has not yet agreed to Israeli or international supervision of payments for natural gas sales.

The new Palestinian Authority (PA) government is prepared to sign a letter guaranteeing the supply of natural gas to Israel, according to recent discussions in Jordan between BG Group plc (NYSE: BRG; LSE: BG) (British Gas) executives and representatives of PA Minister of Finance Dr. Salam Fayyad.

Reports sent to the Prime Minister’s Office and the Ministries of Finance and National Infrastructures suggest that the Palestinians are prepared to anchor in a commercial contract to be signed between British Gas and the government, a commitment to sell natural gas to Israel. This represents some progress in the negotiations with the Palestinians, given that Hamas refused to sell gas to Israel when it came to power.

Senior government officials said, however, that the Palestinians have not yet agreed to Israeli supervision of payments to the PA for the natural gas purchases. British Gas reportedly raised the possibility of international supervision of the money in order to ensure that it reaches its destination and not used to finance terrorism. The PA has not yet formulated a position on this proposal.

The talks in Jordan lasted three weeks. There were no Israeli representatives at the talks. Government sources said that British Gas strongly favors supervision of the money paid the Palestinians because UK law is very strict on this matter.

The cabinet recently approved continuing negotiations with British Gas for the purchase of natural gas from its fields offshore from Gaza, despite security reservations about a deal. British Gas owns 90% of the Marin gas field, with the PA and Consolidated Contractors Company (CCC), owned by Lebanon’s Houri family, owning the rest.

**donsaeid** · 05-13-2007, 02:14 PM

Israel to sign agreement with British Gas within two months

The state will be signing an agreement to buy Palestinian gas from British Gas within two months.

The deal is estimated to be worth $4.5 billion to BG over the period of the contract.

BG would begin delivery to Ashkelon, via an undersea pipeline, in 2011, giving the treasury and Ministry of National Infrastructures time to decide how the gas would be sold to Israeli customers.

BG and the Palestinian Authority are partners in the Gaza Marine field. BG owns 90% and the PA owns the rest of the estimated 33 billion cubic meter field.

However, BG's share will drop to 60% if the field is developed. The other 30% will belong to Lebanese infrastructure and energy company CCC.

Though the deal is expected to close soon, the defense establishment is unhappy. It has tied several strings onto any payments to the Palestinian. For one, it means BG will have to give the Palestinians their share of the revenues not in cash - but in some form of goods or services.

The state will be responsible for marketing the gas to customers: it will not grant this right as a franchise.

The Infrastructures Ministry recommends establishing a state-owned national gas company that will independently sell the gas to private customers. However, the treasury has yet to agree on the creation of such a state-owned entity.

The Infrastructures Ministry sees a government company as the logical intermediate buyer of liquefied natural gas (LNG) for Israel in the future.

Infrastrucutres Minister Binyamin Ben-Eliezer has ordered a study into the feasibility of building an LNG terminal off Israel's coast. A decision on its location is expected within months.

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