Gas pains

Already, the gas flowing into Israel from the Tamar field has decreased electricity costs and lowered pollution levels caused by the burning of oil and coal.

June 24, 2015 21:33
3 minute read.
Israel's natural gas

Israel's natural gas. (photo credit: MINISTRY OF NATIONAL INFRASTRUCTURES)

It is impossible to exaggerate the importance of the natural gas deal being negotiated between the government and a business consortium that includes Texas-based Noble Energy and Delek Group.

Already, the gas flowing into Israel from the Tamar field has decreased electricity costs and lowered pollution levels caused by the burning of oil and coal.

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In coming years, as the gas in the appropriately named Leviathan field – which is twice the size of Tamar – begins to be tapped, we will enjoy a tremendous boon to our economy. Lower energy costs will translate into lower production costs, which means more jobs. Noble, Delek, and other energy companies will create additional jobs.

Lower energy costs will push down the cost of living. State revenues in the form of both taxes and royalties will rise, allowing Israel to invest more in a wide range of fields, from infrastructure and health to education and security. Israel’s energy self-sufficiency will be a bulwark against security risks that have caused disruptions in the flow of gas and oil, most famously from Egypt.

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Because of its supreme importance to the future of Israel, the deal has generated a tremendous amount of controversy.

Feeding the controversy in part was the resignation last month of antitrust commissioner David Gilo, after he received no backing in the government for his demand that more robust competition is needed in Israel’s natural gas market.

Following Gilo’s resignation, many media outlets and politicians – both in the opposition and in the coalition, such as Knesset Finance Committee chairman Moshe Gafni of United Torah Judaism – have claimed that the government is caving in to the whims of big business interests. Many are fearful that Noble and Delek are taking advantage of the government and the lack of competition in the natural gas market and are trying to unfairly pocket profits that should be shared with Israeli citizens, since the gas is, after all, a natural resource that belongs to everyone.

Meanwhile, Prime Minister Benjamin Netanyahu, Energy Minister Yuval Steinitz, National Economic Council head Eugene Kandel and Prime Minister’s Office director-general Eli Groner have been spearheading a campaign to finalize a deal with Noble and Delek. They have warned that unless Israel lowers its demands, there is real danger that the gas will remain in the ground, dozens of kilometers offshore under water a thousand meters deep.

There is some truth on both sides. Undoubtedly, the government, as a representative of the people, has an obligation to strike the best possible deal so that Israelis reap the benefits.

At the same time there seems to be something to the claims being made by Netanyahu et al that Noble and Delek are fed up with the run-around they have been getting over the years by consecutive Israeli governments. Some of the issues include: a lack of clarity in electricity tariffs; manipulation of export taxes and export limitations; delays in the approval of gas sale contracts; failure to reach an agreement on a gas storage facility that resulted in the destruction of the facility and a loss of over $100 million in investments.

The uncertainty generated by Israel’s quixotic regulatory climate has made it more difficult for Noble and Delek to secure financing of upwards of $6.5 billion for the first stage of development of Leviathan.

At this late stage in the game – Tamar was discovered in 2009 and Leviathan in 2010 – it is important that the government reach an agreement with Noble and Delek and put an end to the uncertainty. The first step is the vote slated for today in the security cabinet to revoke the antitrust commissioner’s authority over ensuring there is sufficient competition in the natural gas market and giving it to Economy Minister Aryeh Deri.

A more important step, however, is to find a price control mechanism that, in the absence of any competition in the natural gas market, keeps domestic gas prices reasonable while at the same time allowing Noble and Delek to make it worthwhile for them to continue to invest and develop Israel’s gas resources.

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