On Tuesday 3 February, Israel’s energy minister said that Noble and Delek, two companies operating Israel’s two largest offshore fields, Tamar (discovered in 2009 and with gross mean resources of 10 trillion cubic feet) and Leviathan (discovered in 2010 with gross mean resources of 22 Tcf), will have to sell some of their stakes to avoid being qualified as a cartel. The comment came as a support to the December announcement made by David Gilo, Israel’s Antitrust Commission, that the partnership between Texas-based Noble Energy and Israel’s Delek may constitute a monopoly. Under a previous agreement with Israel’s competition regulator, the two companies had agreed to sell their licenses to two smaller fields located in Israel’s maritime zone, Tanin and Karish, to be allowed to retain their shares in Leviathan and Tamar. This article will address the political and economic reasons behind Mr Gilo’s change of heart.
In its quest to ensure fair competition and the non distortion of the market, the Israeli authorities are incurring the risk of delaying the development of the Leviathan. Export deals with neighbouring countries such as Jordan and Egypt are also at risk. It is unclear what the final decision by the Antitrust regulator will entail, the sale of the stakes in either Tamar or the Leviathan or the splitting of the consortium. What is certain is that there are two crucial considerations at the heart of the debate: the importance to retain Noble to ensure the timely development of the Leviathan on which depends Israel’s regional strategy (given the difficulty of attracting new investors), and the need to ensure a fair and competitive market. A balance between those two objectives will need to be achieved by the final decision of the regulator.
Natural Gas Europe spoke with Natan Sachs, fellow at the Brookings Institution, to understand the dynamics of the dispute between the partners in Tamar and Leviathan, and the Israeli Antitrust Authority. Sachs explains that the main consideration at the very heart of the issue is ensuring that there is no distortion of the domestic market and hence achieving low electricity prices for the private and commercial consumer. A monopoly over the domestic gas market would have a detrimental impact on energy prices.
On the background of the dispute
Sachs explains the background of the dispute: when the Tamar was explored, the partners applied for permission before the Antitrust Authority. This was reportedly not the case for the Leviathan. When David Gilo assumed position, he therefore had to deal with the problem in retrospect, adds Sachs. Asked why Mr Gilo had a change of heart, Sachs explains that there were no serious buyers for Tanin and Karish. Breaking the consortium in two entities also poses a problem, he adds: by the time Leviathan comes online, Tamar, being already in production stage, would have already constituted a monopoly over the Israeli market. Controlling the electricity price by implementing a strict regulation could have been a solution, but the cabinet rejected such a proposal. Protecting the interest of the public by preventing high electricity costs puts enormous pressure on Mr Gilo.
On the impact of the delay in the development of the Leviathan on regional deals
The delay in the production of the Leviathan endangers regional deals namely with Jordan and Egypt. The plunging price of oil will also have a detrimental effect on the development of Israel’s largest field. The tensed relationships between Israel and its neighbours add to the uncertainty of the equation. Sachs explains that whilst Turkish businesses are eager to collaborate with Israel in energy, Turkey has a hostile foreign policy vis-à–vis Israel fueled by the Israeli-Palestinian conflict. Potential deals with the Egyptians and Jordanians are also fraught with political sensitivities, officials in both Egypt and Jordan announcing the talks with Israel as being conducted with an American company (Noble) as opposed to with the state of Israel in an effort to manage their people’s opposition to any deal with Israel.
On the US support to regional cooperation in the field of energy
Asked about the American involvement in Israel’s regulatory dispute, Sachs highlighted three important aspects of America’s positioning regarding Israel’s energy sector: Firstly, the US has acted as a mediator in the maritime border dispute between Israel and Lebanon, expressed its support to regional cooperation between Israel on the one hand and Egypt and Jordan on the other, and attempted to support the Palestinians in their attempt to develop their Gaza Marine field. Secondly, the US has supported Noble Energy’s presence in Israel given that it is an American company. And Thirdly, the US has promoted free enterprise against government intervention.
On the future of Israel’s gas dream
Sachs is optimistic about Israel’s gas future. He believes that despite the problematic nature of the process, once a policy is made, it will be permanent. The high interests at stake and the substantial size of the discoveries require proper planning, but when a new deal is reached, the environment is likely to be consistent and stable, favorable to the effective development of Israel’s offshore resources. Sachs believes that Israel will achieve natural gas independence and secure low electricity costs for the Israeli citizen but he is less enthusiastic about regional deals largely because of the fall in energy prices.