Freezing the development of the Leviathan natural-gas reservoir could have serious geopolitical and fiscal implications for Israel, according to National Infrastructure, Energy and Water Ministry director-general Orna Hozman-Bechor.
She wrote a letter to Israel Antitrust Authority commissioner David Gilo on Wednesday night in response to his announcement earlier this week that a proposed consent decree regarding the entry of the Delek Group and Noble Energy into Leviathan would not be submitted to the Antitrust Tribunal for approval.
Arguing that “no changes in the circumstances have been presented to justify the move,” Hozman-Bechor stressed that the changes could cause “significant and fundamental harm to the energy sector in Israel.”
The proposed consent decree that Gilo elected to scrap on Tuesday would have enabled the Delek Group and Noble Energy, the principle partners in the Leviathan and Tamar gas reservoirs, to remain in the basins without being defined as a cartel. Instead, they would be required to sell their smaller nearby reservoirs Karish and Tanin.
“It has recently become clear to the Antitrust Authority that the proposed consent decree cannot be justified under the standards of the Antitrust Law due to a number of new circumstances,” the authority said Wednesday night. “In particular, the authority has received strong indications that the proposed consent decree will not produce a truly competitive environment that would solve the problem of the existence of a monopoly. In addition, the authority is concerned that government officials are putting their hope in the proposed consent decree and are awaiting its results rather than taking action immediately to further encourage competition.”
Already in November 2012, Gilo declared that the partners in the Tamar reservoir have a monopoly on the supply of natural gas in Israel. Although monopolies are subject to special restrictions, such as prohibitions on reducing competition or setting exorbitant prices, they are legal entities, according to the authority.
In addition to renouncing his support for the proposed consent decree on Tuesday, Gilo informed Delek and Noble Energy that the authority will be considering whether their ownership of Leviathan constitutes a “restrictive arrangement,” meaning a cartel, which is illegal in Israel.
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The Antitrust Authority defines a cartel as “an arrangement entered into by persons conducting business, according to which at least one of the parties restricts itself in a manner liable to eliminate or reduce the business competition between it and the other parties to the arrangement, or any of them, or between it and a person not party to the arrangement.”
Representatives of Noble Energy and Delek will have the opportunity to prove that they do not constitute a cartel at a hearing in January, the authority said.
Among the consequences of halting Leviathan’s development may be the cancellation of various agreements made for the export of natural gas, such as those to Egypt, Jordan and the Palestinian Authority, Hozman-Bechor said.
Doing so would damage the credibility of Israel as a gas supplier, impacting the country’s attractiveness in the hydrocarbon exploration sector, she added.
Many entities have invested large sums of money in the country’s natural- gas sector and might be forced to file lawsuits against Israel should the development be disrupted, Hozman-Bechor said.
“The absolute position of all professional bodies in the National Infrastructure, Energy and Water Ministry is that a fundamental delay in the development of the Leviathan field, beyond the scheduled time of 2018, will result in dramatic and extremely serious damage to the Israeli energy sector,” she wrote.
In response to the director-general’s letter, Antitrust Authority officials said they “see great importance in resolving the gas issue, with the cooperation of the entire government, while applying its lawful authority.”
MK Avishay Braverman (Labor), who has been calling for the supervision of natural-gas prices due to the lack of sufficient competition in the sector, said he supports Gilo’s decision.
“Of course it would have been better if it was done several years ago, because I don’t like the zigzag of Israeli government,” Braverman told The Jerusalem Post on Thursday morning. “But to allow Noble and Delek to own billions and billions at the expense of the Israeli public, and in addition, to not supervise prices, would be one of the worst mistakes in Israel’s economic history.”
While figuring out a way to suitably split Leviathan is important, just as crucial is to agree upon on a competitive price for the country’s natural gas, he said.
In a November interview with the Post, Braverman argued that the price the Israel Electric Corporation was currently paying for natural gas, about $5.6 per mmBtu (1 million British thermal units), was far too high. Citing economic reports, he determined that a price would be between $3 and $3.50 per mmBtu, to fully compensate and provide a competitive rate of return for the producers and make gas affordable to Israeli consumers.
On Thursday, Braverman said he would be satisfied to see a price of $4 per mmBtu. A price must be determined that is good for Noble Energy, Delek and members of the public, he added, stressing the importance of engaging in benevolent capitalism.
But Prof. Brenda Shaffer, an expert on energy policy in the University of Haifa’s School of Political Science and a visiting researcher at Georgetown University, said creating competition should not necessarily be the priority in the Tamar and Leviathan fields.
“You have two fields; you have one buyer,” Shaffer told the Post on Thursday evening. “Throughout the history of trying to set the policy, they have always tried to bend over backwards to create competition. It can’t work with so few actors.”
If Delek and Noble did sell the Leviathan reservoir, the price difference in the gas sold to the Israeli market from Tamar and Leviathan would not likely be significantly different, she said.
Any slight difference in price would not likely make up for the huge time loss encountered in developing the Leviathan reservoir, she added.
With issues like gas availability and energy security critical to the public, Shaffer stressed that “competition should not be above all other goals.”
“In the Israeli so-called market, the only meaningful buyer is the IEC,” she said. “The only meaningful sources of gas is Tamar and Leviathan.”
“There is not going to ever really be competition between them,” Shaffer said.
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