Members of the public can submit reactions to gas outline until July 21

All positions filed must be concise, not exceeding 10 pages, but can include attached documents and appendices, and may be used to formulate final recommendations.

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July 1, 2015 13:07
4 minute read.
Israel's natural gas

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

Members of the Israeli public have three weeks to file their reactions regarding the gas compromise outline published on Tuesday, the National Infrastructure, Energy and Water Ministry announced on Wednesday.

The day after National Infrastructure, Energy and Water Minister Yuval Steinitz presented the terms of the outline, ministry officials invited the public to email their commentary, questions and concerns to gastv@energy.gov.il by July 21.

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All positions filed must be concise, not exceeding 10 pages, but can include attached documents and appendices, the ministry said.

Members of the public must include all of their personal details clearly, but the ministry is not obliged to respond to submissions. If necessary, ministry officials can summon an individual to appear before them, and use the content of submitted documents to formulate final recommendations and publish any materials received, rules on the ministry's website said.

While a version of the compromise outline is not currently available in English, the precise details of the submission rules and copies of the outline itself in Hebrew are available on the ministry's website, at energy.gov.il.

After six months of disagreements among government officials and natural gas companies that have largely frozen the sector’s development, Steinitz released the outline’s final terms for public commentary, prior to cabinet discussions on the subject. On Monday, the government postponed a Knesset vote on a measure that would have enabled the cabinet to move forward with such discussions, due to the coalition’s inability to rally a majority.

The disputes in the natural gas sector 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.” Since then, members of an inter-ministerial team – including representatives from the Energy Ministry, the Finance Ministry and the National Economic Council of the Prime Minister’s Office – have formulated several drafts of a compromise outline to settle the issue, the final version of which was released on Tuesday.

Among the goals of the outline, Steinitz explained on Tuesday, was the swift development of Leviathan, requiring the companies to do so by the end of July 2019.

In addition, the outline aims to foster an environment of competition with the entrance of a new operator into the Israeli offshore market, the reduction of cross-ownership among reservoirs and encouragement of new investment. Lastly, the outline emphasizes the need to ensure reasonable prices during the intermediate period, until competition is established.

Under the outline, Delek subsidiaries Delek Drilling and Avner Oil Exploration would have to exit the 282-b.cu.m. Tamar reservoir, whose gas began flowing to Israel in March 2013, selling their assets there within six years. Houston-based Noble Energy could remain the basin’s operator, needing to dilute its ownership from the current 36 percent share to 25%.

The Delek subsidiaries and Noble Energy would need to sell their holdings in two much smaller offshore reservoirs, Karish and Tanin, within 14 months. Because the buyer would be required to sell gas only to Israel, export allocations intended for these reservoirs would be transferred to Leviathan, according to the outline.

In 2013, the cabinet decided to cap exports at 40% of production.

The outline says the Karish and Tanin buyer would be required to provide “skin in the game,” a phrase meaning that buyers must demonstrate that they have undertaken serious monetary risk through their investment. As an incentive for a quick transaction, the government would allow for Delek and Noble to receive up to 9% of royalties from Karish and Tanin gas sales if they sold the reservoirs within eight months, and up to 7% if they sold within 14.

When negotiating prices with Israeli firms, gas companies will have two options, according to the terms of the outline. The first will involve a formula that takes into account revenues from gas sales made during the previous quarter, divided by the cumulative amount of natural gas in million British Thermal Units (mmBtu). At the beginning of each quarter, the base price will be updated.

The second option is to calculate sales prices based on the best existing consumer contracts in the market, taking into account current prices for benchmark Brent crude oil.

If a company exports gas at a price that is lower than the price on the domestic market, it will need to sell its gas in Israel at the lower price, Steinitz stressed.

Until a competitive market is achieved, a price ceiling with linkage to market changes – at this point, $5.40 per mmBtu – would be enforced, Prof. Eugene Kandel, head of the National Economic Council in the Prime Minister’s Office, explained.

With regard to infrastructure, pipelines designated for export will not be entitled to tax benefits guaranteed to local pipelines, as mandated by the Sheshinski Committee, whose recommendations on hydrocarbon taxation became law in 2013. In addition, the government will publish a memorandum to the Petroleum Profit Taxation Law – the law passed as a result of the Sheshinski Committee proposals – to regulate aspects of transactions among interested parties and to correct loopholes discovered in the law, according to the outline.


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