Israel Navy missile ship patrols near Tamar gas field.
(photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
Last week the OECD published a special report that included the anticipated response to a slew of economic characteristics, such as stability and growth, poverty levels, social gaps, and so on. Under the heading “creating the right conditions for developing an efficient gas market,” the OECD recommends implementing the gas framework drawn up by the government, in order to “guarantee development of the Leviathan reservoir and the development of the infrastructures required in order to create future competition in the gas market.” In other words, the OECD, an organization external to the state, agrees with the government’s actions in connection with the gas framework.
The organization notes that delaying development of the Leviathan reservoir will lead to a slowdown in development of the smaller gas fields and deter continued exploration.
It also argues that although the regulation set out in the framework in connection with the gas price is necessary, this price control should not become permanent. In this way, the organization in fact falls in line with the unfortunate global experience with regard to gas price control, where price-fixing has had a detrimental effect on the market’s development and is even liable to result in a freeze.
According to the OECD, “geologists believe that there are significant gas reservoirs, and apparently also petroleum, which have not yet been discovered.” In light of this, the organization’s economists note that there are real business opportunities in the field, but relate to the regulatory uncertainty as a deterrent. Thus the OECD expresses support for the “stability item” as a decisive component of the gas framework, in order to create a clear investment horizon for the huge investments that the field requires.
According to the report, the export restrictions set out by the Tzemach Committee are liable to slow the market’s development, and therefore the government should reexamine this matter. The government should also take steps to remove the existing obstructions and obstacles in connection with establishing distribution networks and connecting factories, in order to increase local demand for natural gas. The organization also argues that because Israel lacks the knowledge and experience required for exploration and development of gas resources, it should encourage the entry of international companies in this field. Because the scale of Israel’s gas resources is very large relative to the local market demand, gas export is essential for attracting investors. It notes that along with the economic importance of developing the gas sector, export is also of geopolitical importance.
The frequent regulatory changes over the past five years have dramatically reduced the attractiveness of the Israeli gas sector in the eyes of foreign companies. The many changes have led to a dense regulatory fog, and the feeling was that things could not move ahead. Instead of taking advantage of the enormous momentum following the gas finds, and bringing in more and more players, the State of Israel did the exact opposite, leading a policy that effectively resulted in a freeze. One of the lowest points in this matter can be seen in the comparative report by the international consultants HIS, carried out for the government of Norway. A comparison was made between 11 countries, and one of the parameters examined was “sanctity of agreements,” which looked at the degree to which each country upheld undertakings and agreements in the field of gas and oil.
Israel was one place above the bottom, only Nigeria being ranked lower.
The OECD, one of the most important international economic organizations, has a thorough understanding that the framework is important for development of the gas sector and the Israeli economy. The organization’s unqualified support for the gas framework is of unparalleled importance, and is likely to improve significantly the trust of investors and foreign companies in the Israeli gas sector.
It is reasonable to assume that most readers taking an interest in the subject have missed this important affirmation, because it received only minor coverage in the news. It only remains to regret that such significant attention on the part of the OECD to a matter defined by many as “the most important economic issue for decades,” and one of the more prominent (if not the most prominent) economic issues on the agenda in 2015 was given only marginal exposure in the media.
The writer is a natural gas industry expert.