Do Gas Exports Make Good Neighbors?

The development of Leviathan, Israel’s largest reserve, depends in large measure on the ability to export gas to Egypt. So we are told.

Off Haifa coast, oil rig at enormous Leviathan natural gas field.
Albatross

On the surface, it appears that the public debate on the government’s natural gas framework is about to end, but that’s only on the surface. If the plan ultimately goes forward in its current form or with minor changes, the debate will remain with us at least until all of the gas is extracted from the depths of the Mediterranean. That’s something like 20 to 40 years, although the figure’s not final.

That is because the economic and strategic aspects of the issue and its impact on Israel’s democratic process are fodder for both sides to say “We told you so.”

There was much excitement last week when Prime Minister Benjamin Netanyahu appeared before the Knesset’s Economic Affairs Committee to explain why he planned to invoke Section 52 of the Antitrust Law to bypass antitrust considerations and allow the framework to be approved.

The testimony by Netanyahu meant little, however, because by law he doesn’t need the committee’s approval. The last obstacle Netanyahu faces is the High Court of Justice, which does have the power to block him.

In all events, the prime minister had a hard time making the argument that the framework can be justified or not on the basis of Israel’s national security. Still, it’s not hard to be convinced that the gas is a strong card in Israel’s dealings with neighboring countries.

You don’t need an expert opinion of military analysts on that score. Netanyahu is seen as recalcitrant on the diplomatic front, but gas deals could form the basis for warmer, or at least more interdependent, ties with Egypt, Jordan and Turkey. Getting final approval for the framework will also serve Netanyahu in his ties with the United States, notably with his Republican friends.

It was the national security argument that provided the basis for the framework’s commitment to ensure regulatory peace for the next decade vis a vis the gas industry. The demand was not surprising given the regulatory frenzy and zigzagging Israel has been engaged in over the last few years, the result of the fact that Israel had never before had gas reserves. But does Israel’s security needs justify such a limitation on democratic rule? Let’s look at the security argument and see.

Whither Egypt?

Take Egypt, which has double the gas reserves of Israel’s, to start with. Since the revolution that overthrew President Hosni Mubarak, Egypt has been suffering from severe political instability. Its economic situation has deteriorated, and its current president, Abdel Fattah al-Sissi, has failed to right the economy.

The development of Leviathan, Israel’s largest reserve, depends in large measure on the ability to export gas to Egypt. So we are told.

There are a whole lot of unknowns regarding Egypt. It’s not clear if and when Egypt will step up production of its own gas reserves, and the political situation in the country is insufficiently stable to base Israel’s gas policy on what happens there. So, how can we grant regulatory stability to an Israeli gas monopoly when the Egyptian economy in its current situation? And what if there is another coup tomorrow? What if they step up production and the price of gas plummets?

Ties with Turkey, certainly as long as Recep Tayyip Erdogan remains its president, are also problematic. True, gas can provide leverage to restore and strengthen relations, but the situation also remains too flimsy to base an $8 billion project on. It’s good for Israel to have economic leverage with its neighbors but it’s not good for the entire Israeli energy sector to be based just on this.

The economic aspect is the one in which the missed opportunities have been the greatest. The government devoted a lot of time on how to divide the gas pie and made itself the senior partner in gas revenues through the recommendations of a public policy panel, the Sheshinski committee, which boosted the government’s take from 25% to as much as 60%. The government has also dealt a lot with the export issue. But there’s one thing that the government has barely addressed, which is how in the world to turn gas into a growth engine for the economy.

Netanyahu and Energy Minister Yuval Steinitz have spoken a lot about more companies coming to search for gas. But we’ve heard almost nothing from them about other opportunities: industrial plants and public institutions using gas; new industries exploiting gas as a power source; the transition of electricity generation from gas instead of coal; and natural gas-powered public transportation vehicles. They would spur economic growth and create jobs.

Very few Israelis now make a living from the country’s gas. It’s basically just the entrepreneurs and a few hundred workers and service providers (lawyers, accountants, economists, lobbyists and spokespeople). Why hasn’t an inter-ministerial committee been set up so far to turn the gas into a growth engine rather than making do with slogans?

The price of gas and gas exports and Israel’s energy future are relatively easy to answer because they are measurable things that can be verified at various times in the future. Its impact on democracy is harder to measure and decipher. How do you measure the pressure brought to bear on the government? How can you determine the extent to which the prime minister’s diplomatic recalcitrance weaken the government in the face of the monopoly’s power?

To what extent are the monopoly’s business interests dictating the government’s agenda and priorities? How can you measure the impact of the message that the gas cartel conveys to the regulatory officials when it recruits one after another for jobs?

Rays of gas light

There are a few impressive rays of light in this debate, first and foremost the impressive public protests that have developed against the gas plan. After all, the subject involved is very complicated. Nevertheless, many thousands are coming out to demonstrate, in practice giving the government the power to amend its plan. For some reason, it is choosing not to take advantage of that power, because its priorities are different.

The public protest is an important part of this process since it provides a counterweight to the power of the gas cartel, whose resources provide a living to batteries of lawyers and lobbyists. Unlike the protests of the summer of 2011, in which the public was demanding something amorphous like “social justice” and therefore dragged in hundreds of thousands of people, in this case, the protest is more focused and has gotten down to details such as gas pricing, regulations, the laying of an additional pipeline onto shore and Israel’s energy future. The Israel public has really advanced a stage through this protest.

The government tripped itself up in this whole saga in no small measure because of the vacillations of the now former antitrust commissioner, David Gilo, who at first promoted an agreed upon plan that would have required the gas monopoly to give up two smaller exploration sites, Tanin and Karish, and then backtracked. Gilo’s resignation led to the tortured process that the government pursued of deposing one key figure, Electricity Authority chairwoman Orit Farkash-Hacohen, and the moving aside of another, Economy Minister Arye Dery, in an effort to bypass the antitrust commissioner’s position.

The public protest stems in large measure from the government’s conduct and not necessarily from the substance of the gas plan itself. But the debate in the Knesset Economic Affairs Committee is also a ray of light. Although in his appearance Netanyahu easily skipped over the Knesset members’ questions, such an elucidation of the issue is essential to any major and long-term public policy issue.