The Finance Ministry has acceded to the demand by U.S.-based Noble Energy to relax the terms of the government’s plan to break up the natural gas monopoly that controls the country’s main offshore natural gas resources, the Leviathan and Tamar production fields.
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The shift in policy comes ahead of the formation of a new government and the expected appointment of Kulanu leader Moshe Kahlon as finance minister. Kahlon has taken a hard line against the gas monopoly.
Development of Leviathan was thrown into doubt after Israel’s competition regulator recommended in December the breakup of what it says is monopoly control of the country’s offshore gas reserves by Noble Energy and the Delek Group, which hold 85% of Leviathan. The two firms discovered the Tamar and even larger Leviathan fields off Israel’s Mediterranean coast in 2009 and 2010 and are the main shareholders in both fields.
Now however, the Finance Ministry, together with the Prime Minister’s Office and the Ministry of Energy and Water Resources, have agreed in principle to retreat from requiring the owners of the Leviathan exploration site to separately market the gas that is produced on the Israeli market. In effect, the requirement would have turned the partners in Leviathan into competitors when it comes to selling the gas in Israel.
At this point, the ministries have not offered an alternative plan for the sale in Israel of gas from the giant offshore production facility, effectively abandoning the goal of creating competition among five or six companies selling gas to Israeli customers.
At the same time, the ministries have agreed to consider a request by Noble Energy to reopen a 2013 cabinet decision on the export of Israeli gas. Noble has requested an increase in the gas export quota it was provided from the Tamar site at the expense of gas that would have been reserved for the local market.
The government shift in position away from requiring a breakup of the gas monopoly angered Antitrust Commissioner David Gilo, since the breakup plan had been agreed to by all the relevant government ministries before the March 17 Knesset election. A meeting of government representatives that convened within the past month ended without results, after which Gilo decided to absent himself from the policy meetings on the gas monopoly and to bar his staff from attending further meetings.
It is assumed that Gilo would go to antitrust court to challenge any policy change that is pushed through before a new government is in place.
Prime Minister Benjamin Netanyahu has been tapped to form the next government and Kahlon has been promised the finance portfolio. If an effort is made to shift to a more lenient policy toward the partners in Leviathan before the new finance minister is appointed, Gilo is expected to seek a court ruling that Noble and Delek’s interest in Leviathan constitutes a restraint of trade in violation of the antitrust laws.
Until Kahlon takes office at the Finance Ministry as expected, the acting finance minister is Netanyahu and the ministry staff reports to him. Over the near term, meetings between the ministries and senior representatives of Noble and Delek are expected to continue in an effort to iron out other terms that are in contention.
Kahlon campaigned in part on his record as a communications minister for Likud who oversaw the injection of competition in the cellular telephone service sector, which in turn substantially drove down the costs to the consumer. During the recent Knesset election campaign, the Kulanu party called explicitly for the elimination of what it termed “monopolistic power” in the natural gas sector, along with a structural change that would allow for the breakup of the monopoly. The party says it wants the government take unilateral action against the gas companies if they fail to accede to proposed settlement terms.
Reuters contributed to this report.