While Prime Minister Benjamin Netanyahu and National Infrastructure, Energy and Water Minister Yuval Steinitz were all smiles at Thursday’s ceremony to kick off the country’s natural gas framework, the celebrations that ensued across the sector may still be slightly premature.
As quickly as Netanyahu placed his signature on Article 52 – the legal clause required to activate the gas deal – opposition leader Isaac Herzog reiterated the Zionist Union’s intentions to bring the matter to the High Court of Justice and put an end to what he described as a “crooked process” that ignored the rights of the Israeli public. Meretz chairwoman Zehava Gal-On followed suit on behalf of her party, and an environmental NGO submitted its own petition a day earlier.
The petitions are scheduled for a collective discussion in the High Court on February 3, according to media reports.
Netanyahu, in his role of economy minister, needed to invoke Article 52 of the 1988 Restrictive Trade Practices Law in order to bypass the objections of the antitrust commissioner to the country’s natural gas deal.
Although it is within an economy minister’s rights to activate the clause by citing interests of national security or foreign relations, never before has a minister chosen to do so.
The prime minister’s decision to employ Article 52 has sparked the ire of both Knesset opposition members and social activists who argue that he is rashly making use of the “security interests” slogan in order to implement a gas outline that will neither foster competition nor bring Israelis the revenues they deserve.
Herzog called the move a “cynical exploitation of security needs,” while Gal-On spoke of “fabricated security pretexts and extreme unreasonableness.”
During Knesset discussions on the subject last week, Economic Affairs Committee Chairman Eitan Cabel (Zionist Union) likewise stressed that he remained unconvinced that Israel’s security would be undermined or that its foreign policy with its neighbors would collapse if the natural gas outline was not implemented.
Netanyahu, Steinitz and many industry professionals have maintained the opposite, however, describing how the gas framework is a prerequisite to developing supply redundancy in Israel and securing regional export agreements with the country’s neighbors. On Thursday, the prime minister went so far as to call the gas outline the country’s “only chance.”
How extensively the High Court will become involved in the matter, if at all, remains to be seen.
“I’m afraid to celebrate,” Miki Korner, a private energy consultant and former chief economist for the Natural Gas Authority, told The Jerusalem Post on Thursday.
It is up to the High Court to decide whether “it has the right to interfere with a government decision” that was determined based on national security and geopolitical needs, he explained. Acknowledging that the High Court could choose to launch months of renewed deliberations on the subject, Korner said he felt that such a decision was unlikely.
“I hope and I expect that the High Court will say, look, this is not a matter for the High Court – this is a matter for the government to decide according to the law,” he added. “Such a decision can be taken in days.”
Nonetheless, even if the court sides with the government, Korner stressed that the country’s natural gas saga is far from over.
“From somebody who’s living in the market, I talked to people in the industry today and they don’t want to open the champagne yet,” he said.
Regardless of the High Court petitions, the clock began ticking on deadlines presented in the natural gas outline on Thursday, as soon as Netanyahu signed Article 52 and activated the deal, Korner explained. While, “in this sense, it is a turning point,” such a step means all sides involved have to plunge into acquiring the statutory, technical and financial approvals necessary to fulfill massive investments and agreements during a time in which the industry has taken a global downturn, according to Korner.
“But, yes, at least we will start working,” he said.
Assuming the High Court does not put a stop to the deal, the terms of the gas outline demand a shift in ownership in some of the country’s existing reservoirs, and provides a variety of measures regarding stability, gas pricing and export policies, among other details.
The outline stipulates that within six years, Delek Group subsidiaries Delek Drilling and Avner Oil Exploration must exit the 282-b.cu.m. Tamar reservoir, which has been the sole provider of gas to Israel since March 2013. While Houston-based Noble Energy may remain the basin’s operator, the American company will need to dilute its ownership from the current 36 percent share to 25% within the same six-year time frame.
At the moment, the Delek subsidiaries each hold a 15.625% stake in the Tamar reservoir, while Isramco holds a 28.75% share and Dor Gas Exploration owns 4%. The basin is located about 80 km. west of Haifa.
The Delek subsidiaries and Noble Energy will also need to sell their holdings in two much smaller offshore reservoirs that have yet to be developed, Karish and Tanin, within 14 months from the deal’s activation.
Noble Energy had held a 47% share in Karish and Tanin, while Delek Drilling and Avner Oil Exploration each had 26.5%. In mid-November, however, the Delek Group announced that its subsidiaries would be purchasing Noble’s portion, in order to sell all of the holdings to a third entity once the deal was activated. With regard to the development of the 621-b.cu.m. Leviathan reservoir, the outline demands that by the end of 2017, the gas companies show investment commitments of at least $1.5 billion in the basin.
In five years’ time, the companies need to demonstrate total investment commitments of at least $4b.
Assuming the reservoir leaseholders meet these requirements, the government in return is promising the companies 10 years of stability regarding their contracts.
Noble Energy holds 39.66% of the Leviathan basin, while Delek Drilling and Avner Oil each own 22.67% and Ratio Oil Exploration holds 15%.
The outline maintains that the companies will be able to remain in Leviathan, located about 130 km. west of Haifa, without any change in ownership. The government has reserved the right, however, to require separate marketing of gas to the local market after either January 1, 2025, or January 1, 2030, depending on future assessments of the energy minister.
As far as pricing is concerned, electricity producers will receive a gas price based on an average of the three least expensive contracts of today – those of three independent power producers. By the beginning of 2016, the gas price will be about $4.70 per mmBtu, with linkage to market changes.
Opposition politicians and social activists across the country consider the terms of the outline far from ideal and have taken great lengths to prevent its realization – through mass demonstrations week after week and steadfast participation in the countless Knesset debates on the subject.
In their eyes, the method of activating the deal, by means of the infamous Article 52, was even more problematic.
While also often acknowledging that the outline might not be perfect, government officials and the bulk of industry professionals have worked to refine the document into a deal they fervently support as the best possible method to advance the sector. Activating the deal, in their minds, has been critical to ensuring national energy security and maintaining productive relations with Israel’s neighbors.
Only time – and the determination of the High Court – will tell how the future of the country’s turbulent gas sector will continue to unfold.
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