Regulator may declare Noble, Delek a cartel after backtracking on gas deal

Noble Energy and conglomerate Delek Group owned rights to develop the huge Leviathan natural gas field off the country's Mediterranean coast.

Billionaire industrialist Yitzhak Tshuva (photo credit: Wikimedia Commons)
Billionaire industrialist Yitzhak Tshuva
(photo credit: Wikimedia Commons)
Antitrust Commissioner David Gilo said on Tuesday he would drop a compromise deal with energy groups Noble and Delek and could declare them a cartel – a move that could bar them from continuing to hold stakes in both the Tamar and Leviathan gas fields.
But late Tuesday night, Prime Minister Benjamin Netanyahu showed a readiness to intervene and instructed his national economics adviser, Prof. Eugene Kendel, to review the issue.
Anonymous sources in the Prime Minister’s Office reportedly indicated that Netanyahu wanted to strike a balance between what he viewed as an imperative need for gas distribution to move forward soon, and the competition and pricing issues that concerned Gilo.
At the same time, reports also cited the Prime Minister’s Office as saying on the record that Netanyahu would not be formally intervening, as he did not have authority on the issue and was merely asking his advisers to review the impact of Gilo’s decision.
The decision cannot move forward before a face-to-face meeting with the companies, which is scheduled for mid-January.
Even if the companies are declared a cartel, no action to break their grip on the market can be taken without court approval.
“The apparent decision of the antitrust commissioner to reconsider that agreement will cast a shadow over the future of the oil and gas industry in Israel and will impact Noble Energy’s continued investment there,” Noble Energy Israel head Binyamin Zommer said.
Last year, Gilo inked a deal with the two companies, in which they agreed to sell off stakes in the smaller Karish and Tanin fields, also west of Haifa.
Noble has invested $6 billion in developing the country’s oil and gas sector, with full approval of the government, Zommer said.
When Gilo challenged the companies’ position, they agreed to divest from Tanin and Karish. But several factors since that agreement led the Israel Antitrust Authority to question whether the deal would be sufficient to create a competitive market. In May, Australian energy company Woodside pulled out of a preliminary agreement to buy a quarter of Leviathan.
Noble’s and Delek’s stocks tumbled dramatically when Gilo summoned the two companies to a meeting on the issue on Monday.
“The commissioner’s decision creates a lot of uncertainty,” Noam Pinko of Psagot Investments said, adding that the companies would probably take legal action to protect their investments. Such a process could entail extensive delays as it works its way up to the Supreme Court.
“This situation will lead to years of delay in the development of the Leviathan reserve and will harm Israel’s energy independence, which continues to be based around one gas reserve,” he said.
The change could also affect Israel geopolitically, as the decision could hamper the companies’ abilities to follow through on plans to sell gas to Jordan and Egypt.
Whether or not the decision is ultimately right, Pinko argued, it highlights that regulatory uncertainty has been and will continue to be the biggest problem in Israel’s gas sector.
The Antitrust Authority said it had taken the economic implications into account in its decision, but that the compromise agreement did not solve the competition problems.
“The authority is aware of the fact that its decision may have implications for the economy, and therefore calls on all government offices to act together and work intensely toward minimizing these consequences,” it said.
Knesset Finance Committee chairman Nissan Slomiansky (Bayit Yehudi) said he would convene a recess meeting on Monday to discuss the decision, but noted approvingly that the Concentrations Law empowered the antitrust commissioner to break up monopolies.
“The issue of gas is his first test,” Slomianksy said. “The partnerships in Tamar and Leviathan are a monopoly, for all intents and purposes, a monopoly that has a major effect on the cost of living in the medium and long term, more than anything else.”
He said it was important to ensure that the companies continued profiting in light of their large investments in extracting the gas, but the gas itself belonged to the people of Israel.
Economic Affairs Committee chairman Avishay Braverman (Labor) called for monitoring the price of gas until competition was introduced.
“The price the [Israel] Electric Corporation pays today for natural gas from Tamar is close to $6 per MMBTU [million British thermal units], and according to all the international experts who have dealt with the subject, and also according to my professional opinion, the fair price is between $3 and $4. There is a need to supervise the price to that level,” he said.
Labor MK Shelly Yacimovich called Gilo’s move a courageous act, and pinpointed Delek owner Yitzhak Tshuva for criticism.
“The crocodile tears of Tshuva and his friends must not scare the decision-makers,” she said.
The Movement for Quality Government praised Gilo’s decision and said it would support further action to introduce competition into the sector.