Analysis: Gov't actions not backing up intentions

The country has officially lost out on possibly its best opportunity to secure more natural gas.

oil 88 (photo credit: )
oil 88
(photo credit: )
When BG Group Plc declared on Thursday an end to its negotiations with Israel for the sale of 1 trillion cubic meters of natural gas, the country officially lost out on possibly its best opportunity to secure more of the sought-after natural resource, a development that is mainly attributable to the government's reluctance to offer BG a fair price for the $4 billion worth of gas. This reluctance seems even more surprising considering that the news has been flooded recently with government efforts to decrease dependence on oil and instead turn to other energy sources - including natural gas and renewable sources such as sun and wind. Around seven years ago, the government awarded a tender to Yossi Maimon's East Mediterranean Gas Company to provide approximately 7 billion cubic meters of gas a year for 20 years, beginning next year. Under the terms of the agreement, 5.8 billion cubic meters would go to the Israel Electric Company and the remainder to private companies. The government purchased the gas from EMG at a relatively low price, and figured that it could acquire BG's gas for similar terms. Gas prices have risen significantly over the past seven years, however, making it impossible for BG to offer such a low price, yet the government refused to recognize this and continued to make offers way below market price. In 2000, when BG first opened negotiations with Israel, natural gas was priced at $2.75 per million BTUs (British Thermal Units), while today the price is hovering around $4 per BTU. Meanwhile, oil, which is today approaching $100 a barrel, cost $18 a barrel in 2000. Historically, the price of natural gas rises in correlation with oil. Additionally, the Israeli negotiating team, led by Finance Ministry Director-General Yarom Ariav and National Infrastructures Ministry Director-General Hezi Kugler, brought competing necessities to the negotiating table. While Kugler may have been serious about buying the gas, Ariav always had in mind the country's bottom line, said a BG official, and the two never seemed to be on the same page about the price of the gas. After repeatedly hitting dead-ends in the negotiations, BG openly questioned Israel's desire to complete the deal. "I have to ask - where does this deal rank on the government's priorities and is the government really serious about making it happen?" said BG Vice President Nigel Shaw in September. "The Israelis think that if they wait long enough, we will bring down the price. But we are a $50b. company, and while we want to make this sale, we can just as easily sell the gas to another buyer." Apparently, for the government, while new sources of energy are a noble cause, they do not take precedence over keeping down government spending, as Kugler's stabs at securing the gas seemed to have been trumped by Ariav's budgetary pressures. Whether BG's pullout proves to be a bargaining ploy to motivate Israel to make a serious offer or is in fact real, it may be that the government really is not interested in what BG is selling. This week, Infrastructures Minister Binyamin Ben-Eliezer was in Turkey, where he met with energy officials to discuss the construction of a natural gas pipeline from Turkey to Israel. Additionally, Ben- Eliezer is exploring the possibility of constructing a pipeline from the oil-rich country of Azerbaijan to Israel. Moreover, Kugler travelled to Russia last spring to meet with the head of that country's gas company, Gazprom, with the intention of negotiating the export of Russian natural gas to Israel. Yet even those attempts may prove to be dreams; after failing in its attempt to buy gas from a location only 36 kilometers off the coast of Ashkelon, does it really seem likely that the government will cough up the funds needed to pay for pipelines stretching thousands of kilometers?