Netanyahu on natural gas: We will not repeat mistakes of other countries

Steinitz calls compromise outline over Leviathan "balanced, responsible and appropriate."

Israel's natural gas (photo credit: MINISTRY OF NATIONAL INFRASTRUCTURES)
Israel's natural gas
Amid ongoing controversy over Israel’s natural gas resources, Prime Minister Benjamin Netanyahu pledged on Tuesday to move forward with a compromise plan designed to facilitate the development of the Leviathan reservoir, which has been frozen since December.
“We will not repeat the mistakes that other countries made when they sought ideal solutions for their gas,” Netanyahu said at Tuesday’s cabinet meeting in Jerusalem.
Netanyahu pointed out that in many cases, such policies have led to gas resources remaining underground.
“In this situation they could pat themselves on the back for wanting the most competitive framework that was never realized,” he said.
Netanyahu’s comments came a day after Antitrust Commissioner David Gilo announced his forthcoming resignation from the regulatory body, due to disagreements with other government officials regarding the terms of a compromise plan with the country’s gas companies.
Without Gilo’s approval, representatives of an interministerial team – from the Finance Ministry, the National Economic Council and the National Infrastructure, Energy and Water Ministry – presented the Delek Group and Noble Energy with the outline about two weeks ago.
The stalemate in the natural gas sector stems from Gilo’s December 2014 declaration that he would review whether the dominance of Delek and Noble in the Mediterranean gas sector constitutes an illegal “restrictive arrangement.”
Although gas from the 282-billion cubic meter Tamar reservoir, located about 80 km. off the coast of Haifa, has been flowing into Israel since March 2013, development of its neighboring
Leviathan basin has been unable to proceed as a result of the dispute.
The recently proposed compromise outline would require that the Delek Group’s subsidiaries Delek Drilling and Avner Oil Exploration exit the Tamar reservoir entirely, selling their assets there within six years. Houston-based Noble Energy would only need to dilute its assets from its 36-percent share today to 25%, and could remain the basin’s operator.
Both companies would be required to sell their holdings in two much smaller offshore reservoirs, Karish and Tanin.
Unlike the previous draft of the compromise outline, which Gilo had supported, this version revoked a mandate that all of Leviathan shareholders market their gas to the Israeli market separately and posed weaker restrictions on Noble in Tamar.
Expressing his regret that Gilo did not agree with the final compromise outline presented to the Delek Group and Noble Energy, Netanyahu promised to move forward with the plans regardless.
“I will not allow any consideration or pressure or populist moves to prevent the flow of gas to the State of Israel,” he said. “We will extract this gas from the depths of the sea, we will bring it to the citizens of Israel, and we will make society as a whole better off.”
Arguing that natural gas development remains crucial in the face of geostrategic and economic challenges, National Infrastructure, Energy and Water Minister Yuval Steinitz likewise voiced his support on Tuesday for the compromise outline.
“From my first look, after meeting with the team together, the general direction seems balanced, responsible and appropriate, and the work seems very serious to me,” Steinitz said on Tuesday, in his first public speech as energy minister.
Steinitz was addressing participants of the Israel Institute for Energy and Environment’s National Panel for Energy in Tel Aviv, where he emphasized how the next few weeks will involve key decisions in the natural gas arena.
“It is incumbent on every one of us to pull this wagon from a quagmire, to bring back Leviathan,” Steinitz said.
Citing his experience in the sector, he referred back to his tenure as finance minister, during which he established the Sheshinski Committee to determine new gas taxation policies – an effort he described as “the toughest public struggle that [he] ever waged.”
Prof. Eytan Sheshinski, who headed that committee and whose recommendations eventually became law in March 2011, is now once again serving as an adviser to Steinitz.
Moving forward, embracing the lessons learned by other countries more experienced in the hydrocarbon sector will be crucial, Steinitz explained.
Israel can also learn from its own past mistake, in which delays in Tamar’s development caused a gap in the country’s natural gas supply, he added.
“We were forced all of a sudden to buy expensive fuels in order to produce electricity in 2012,” Steinitz said.
“The economic damage – I was finance minister then – was immense.”
From the end of 2011 through the beginning of 2013, the supply gap cost the Israeli economy some NIS 20 billion, according to Steinitz.
As a result of burning heavy fuel oils instead of gas, Israelis were also “paying with [their] own health,” he added.
“My responsibility is that this mini-tragedy of 2012 will not turn into a maxi-tragedy in the next few years and the next few decades,” Steinitz said.
Steinitz also discussed the geostrategic benefits of advancing the gas program, particularly referring to potential export agreements with Jordan.
He also warned that the potential lifting of sanctions on Iran could attract gas market investors to the Islamic Republic – a country with reservoirs 40 times the size of those in Israel.
Like both Steinitz and Netanyahu, National Economic Council head Prof. Eugene Kandel voiced his support for the outline, calling it responsible, even if unpopular. Officials were faced with either choosing a plan that they felt “would risk the capabilities of the State of Israel to develop gas” or trying to sway the antitrust commissioner to their side, he explained.
“He was unconvinced, and that’s his right,” he said at the conference.
Kandel argued that the compromise outline is inclusive, provides potential new investors with increased security and fosters competition.
The country’s goals in the future, he explained, should involve the accelerated development of Leviathan, Karish and Tanin as well as the expansion of Tamar, and the advancement of a competitive yet attractive investment environment.
Gideon Tadmor, CEO of Avner Oil Exploration and chairman of Delek Drilling, said that while the Delek Group sees the terms of the outline as “unprecedented in the State of Israel,” the company would “do all that we can to see how we can realize it.”
Tadmor added, however, that the companies could only provide a final answer once they have “seen the entire picture.”
Despite the increasing willingness toward compromise among the interministerial team members and the companies, Gilo’s staunch objections to several of the outline’s terms led to his resignation announcement on Monday. He has continuously voiced support for terms requiring separate marketing in the Leviathan reservoir and restricting Noble Energy’s gas sales from Tamar to the Israeli market, both of which were part of an initial outline proposed in mid-February.
“It became clear to me that the relevant government ministries will do all in their power to promote the arrangement that is currently taking shape, an arrangement that unfortunately will not lead to competition,” Gilo said at Tuesday’s conference. “Furthermore, this process may diminish the independence of the Antitrust Authority, an independence that is extremely important from a public perspective.”
After government officials sat down to lay out a potential compromise this winter, Gilo said, he “took very seriously the threat of the monopoly supplier not to produce natural gas” and therefore opted for negotiations over legal action. Although describing the initial mid-February outline as “far from being perfect,” he stressed that this version could have fostered competition.
“Essentially, we are in a situation in which we have demanded competition and the monopoly supplier has told us to decide: If you insist on a healthy level of competition, then I will not produce the gas,” Gilo added. “But we want to say to them that we want both natural gas and competition, that the Israeli consumer deserves both natural gas and a competitive natural gas market.”