Israel's natural gas.
(photo credit: MINISTRY OF NATIONAL INFRASTRUCTURES)
On Tuesday, Antitrust Commissioner David Gilo shocked the energy market by saying he would cancel a compromise deal with Texas-based Noble Energy and Israel’s Delek Group and could declare them a cartel, forcing them to sell stakes in the Tamar and Leviathan gas fields west of Haifa.
The sudden decision creates tremendous uncertainty in a sector that has been a bright spot for the economy and the region at a most inopportune time, as the country heads to elections. Yitzhak Tshuva, the owner of Delek Group, had hoped to head off Tuesday’s decision but was left frustrated.
Noble Energy released a harsh response to the ruling.
“The likely decision of the commissioner to backtrack on the agreement casts a dark shadow on the future of the gas and oil industry in Israel and will affect Noble Energy’s investments in the country,” said the CEO of Noble’s Israeli subsidiary, Benjamin Zomer. Although Noble’s shares were not badly affected, the Israeli oil and gas index plunged by more than 10 percent, while other players in the gas fields, such as Avner, Delek Drilling, Delek Group and Isramco all saw loses of between 5 and 20 percent in their share prices.
Tshuva told Army Radio that he was a victim after having invested “so much of my own money. Five years have been wasted.” He said that if he was forced to sell his stake in Leviathan it would harm Israel’s credit rating and international agreements.
The history of the development of the gas fields and the various agreements is complex. Since the 1990s, Noble Energy has partnered with Tshuva and Delek drilling to explore for and develop natural gas off the coast. The first field to be developed, Tamar, cost $3 billion to develop and began production in 2013. The Leviathan field, discovered in 2010, will take years to develop but is much larger, containing an estimated 19 trillion cubic feet of natural gas (Tamar has 10 trillion).
A week before Gilo’s decision, The New York Times praised the gas development as a “lifeline for peace.” Gideon Tadmor, the chairman of Delek Drilling, told reporters that up until the decision the partners had been in “advanced negotiations” for signing contracts with Jordan, Egypt and even working with Cyprus and Turkey. The regulator’s decision casts a pall over these deals and makes Israel seem unstable and unreliable.
The problem is that since the beginning, the companies involved in development the gas fields, and investing as much as $8b. to do so, have been subjected to withering criticism and constantly changing government policies, including much red tape. After the gas was discovered, the government established the Sheshinski Commission that argued for revising the tax and royalty structure in favor of the state.
In 2013, Gilo agreed to a deal with the partners that they would not risk being declared a monopoly if they sold off interests in the smaller Tanin and Karish fields. Politicians have been quick to encourage populist sentiment against Tshuva, who is portrayed as a greedy capitalist. Labor MK Shelly Yacimovich called his complaints “crocodile tears.” A petitioner against the monopoly asserted, “Tshuva didn’t invent this gas, he was just lucky.” Other MKs have been outspoken in advocating application of a 2002 law that states “Ministers will enforce by decree the price of natural gas.”
Ostensibly, the decision by the antitrust commissioner is for the public good, to encourage competition and lower prices. But the glee and populism with which some attack Tshuva and mock his multi-billion dollar investment is short-sighted. The government did not want to invest in natural gas, it left it to companies to take the risk. After gas was found, politicians and the public clamor for regulated prices and launch tirades against the entrepreneurs.
This self-defeating policy reeks of the old days of price controls, rationing and a stagnant socialist economy.
Israel needs a transparent energy policy, with checks and balances, that will encourage foreign investment and knit together the region in peace, not more surprises and populist-driven negative policies that harm our economic future for short-term political gains. It is time Israel put natural gas first and for the government and business to work in harmony to invest in Start-up Nation style infrastructure, while encouraging competition and a free market that will benefit the consumer as well as business.