Israeli market made gas monopoly probable, says BOI report

The battle over how to regulate the companies extracting gas from Israel's reserves has been a long and bruising one, and has gone all the way to the Supreme Court.

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March 15, 2016 19:40
1 minute read.
tamar gas

Tamar gas field‏. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

 
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A Bank of Israel report released Tuesday found that circumstances specific to Israel's gas market made the formation of a monopoly highly likely.

"An analysis of the developments leading up to the discovery of the Tamar and Leviatan reservoirs indicates that the formation of a monopoly in the natural gas production sector reflects, to a large extent, the difficulty in raising funds and recruiting top-tier operators for deep sea exploration in Israel," the report, written by BOI senior economist Yoav Friedmann said.

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"In such a situation, when few reservoirs are found, there is a considerable probability that they will be held by one of those operators."

The battle over how to regulate the companies extracting gas from Israel's reserves has been a long and bruising one, and has gone all the way to the Supreme Court.

The analysis critiqued the extent of the political fist-swinging over the gas, arguing that a certain level of back-and-forth over regulation made for better policy, but too much infighting had negative repercussions on Israel's business environment.

In moderation, reorienting policy in favor of the public at the expense of investers was positive, the paper said.

"When such a policy is conducted in moderation, and with taking into account the entrepreneurs’ investment considerations ex ante—an approach that was reflected in, for example, adopting the conclusions of the Sheshinski Committee to increase taxation on profits in the industry—it is not out of line in an international comparison and is likely to be beneficial to the citizens over the long term as well," Friedmann wrote.

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"However, making numerous decisions that adversely impact entrepreneurs is liable to negatively impact investment in the industry," he added.

Some onerous regulation, such as demanding that the smaller Tanin and Karish reservoirs be oriented toward domestic sales only, made it less likely that they would be developed at all.

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