Report blasts govt's natural gas policy with fateful decision looming

By
July 20, 2015 16:31

The government’s policy on natural gas should function “like a harmonious orchestra with a conductor as its head,” State Comptroller Joseph Shapira writes in his report.




Hadera

A man points as he stands on a tanker carrying liquified natural gas, ten miles off the coast from Hadera. (photo credit: REUTERS)

With the clock counting down on a fateful decision regarding natural gas policy for years to come, State Comptroller Joseph Shapira on Monday blasted the government for a range of deficiencies, including “contributing to creating a monopoly,” failure to police pricing, and weakness negotiating with key private companies.

The special report, the latest in a series, shows the great importance with which Shapira views the issue, including the main consequences on a host of levels. Key issues emphasized by Shapira include securing the country’s energy independence and promoting natural gas as “a source of tax and royalties revenue.”

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In the report, Shapira said Israel has just one natural gas supplier, which holds a monopoly; that there is only one drilling company for the Tamar reservoir; that there is only one pipeline for distribution of the gas and its capacity is limited; that there is no proper system for storing the gas, which puts undue pressure on the state to extract it faster; and that gas likely will be exported from Tamar before being extracted from other reservoirs.

Next, Shapira slammed the government’s failure to set guidelines for pricing the natural gas on the market, including deciding the extent and method of oversight there will be on the pricing.

“It is incumbent on the government to guarantee” that “the price of gas is competitive” as long as “there is a monopoly in the area of supplying natural gas,” he wrote in the report.

Shapira recommended holding off on the government’s upcoming expected historic decision on the direction of natural gas policy until pricing guidelines are set and it is made clear to the reservoir operators that if they fail to comply, the state could redo the legal framework governing policy.

The report made this recommendation despite a government declaration that it will not make major changes to its new policy, possibly for as long as 10 years.

Seven months of disagreements among government officials and gas companies have frozen the industry’s development.

Aiming to bring the disputes to a close, the National Infrastructure, Energy and Water Ministry released terms of a compromise outline on June 30.

Terms of the outline are available for public review until Tuesday, after which ministry professionals plan to conduct a hearing on the subject on Wednesday and Thursday.

Although the sector has been rife with conflict among government and corporate interests for years, the most recent disputes are the result of Antitrust Commissioner David Gilo’s December announcement that he would review whether the market dominance of the Delek Group and Noble Energy constituted an illegal restrictive agreement.

Among the outline’s proposals is the mandate that Delek subsidiaries Delek Drilling and Avner Oil Exploration exit the 282-b.

cu.m. Tamar reservoir, whose gas began flowing to Israel in March 2013, by selling their assets there within six years. Houston- based Noble Energy could remain the basin’s operator, but would have to dilute its ownership from the current 36 percent share to 25% within the same time frame.

The Delek subsidiaries and Noble Energy also would need to sell their holdings in two much smaller offshore reservoirs, Karish and Tanin, within 14 months.

With regard to the Leviathan reservoir, the companies would be able to remain without any change in ownership. The government would reserve the right, however, to require separate marketing of gas after 10 years of operation, or fewer, if necessary.

The outline also presents two options through which gas companies would be able to negotiate prices with Israeli consumers, but stresses that the firms would not be able to export gas at prices lower than domestic sales prices. Meanwhile, until a competitive market is achieved, a price ceiling with linkage to market changes – at this point, $5.40 per mmBtu (million British thermal units) – would be enforced. Although the gas outline’s terms have been published, bringing the document to the cabinet for approval still faces a hurdle that the government had expected to overcome during a scheduled Knesset vote on June 29. That evening, the coalition elected to postpone a vote on a legal matter that would have allowed the government to disregard antitrust commissioner Gilo’s objections to a deal.

Gilo has made clear that he would not support the outline and in May went so far as to announce his resignation, effective in August. It remains unclear when a new vote on the matter will take place.

Shapira also emphasized the lack of coordination of the different arms of the natural gas policy, including of numerous different regulators, saying the failure has led to massive delays and misunderstandings in the state’s exploitation of its natural gas resources.

While showing sympathy for arguments made by the movement criticizing the government’s policy as too favorable to a few private sector oligarchs, Shapira also praised the private sector for investing in natural gas and emphasized that they are not “enemies.”

Furthermore, Shapira criticized the absence of a central natural gas storage spot following the state’s failed plan to store gas in the Mari-B reservoir.

Finally, Shapira found that few of the more than 40 licenses granted by the government for gas exploration gave potential explorers besides Noble Energy a real chance at success.

The ideal solution to the deficiencies would be to concentrate authorities over gas within a central regulator, governed by the Energy Ministry, the statement continued.

“Unfortunately, a substantial number of things were not reflected in this report,” the ministry said. “The National Infrastructure, Energy and Water Ministry will continue to vigorously promote the issue for the benefit of the state and its citizens, will examine the comptroller’s findings seriously and responsibly and will act to implement all actions to advance the matter.”

For its part, the Finance Ministry asserted that its officials acted in coordination and cooperation with other government bodies “to ensure the continued development of the gas industry in Israel, while preserving the public interesting.” •


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