So what’s happening with the government’s plan to address the offshore natural gas monopoly in Israel? Here’s the deal: The 30 days the government allocated for a public debate on the plan expires in another week and a half, immediately after which Energy Minister Yuval Steinitz intends to submit it for Knesset approval. However, as with everything related to the gas issue, nothing is right about this process.
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Firstly, there has yet to be a hearing. There are bodies that have sent or will send their responses to the plan before the deadline, but it is unclear who will be reading them. No one has been called in to explain them before any government committee.
It’s not very surprising that no committee actually formulated the gas plan. It was the result of from negotiations between government officials headed by Eugene Kendel, head of the National Economic Council, and the gas monopoly.
The government referred to the process as “administrative work.” No hearing, whether or not there will even be one, was planned in advance. It’s all ad-libbing at the last moment, so no one can complain to the officials and prime minster that they didn’t push through the most important economic agreement in recent decades in the dead of night or without a democratic process.
Second, the prime minister and his officials were never even interested in hearing or considering other opinions. Indeed, in the middle of the process of formulating the plan, none other than the antitrust commissioner himself, David Gilo, resigned. Gilo was the man whose official task was to shape the scheme and to create competition. When economists Avi Ben Bassat and Manuel Trajtenberg, or Dror Strum the former antitrust commissioner, declared that the plan is a mistake – the prime minister ignored them. When social justice groups protested it, the prime minster accused them of “populism.”
Perhaps the strongest evidence of Netanyahu’s lack of willingness to heed other opinions is the fact that in the last three weeks, he hasn’t stopped marketing the plan before every camera or open microphone. What’s the point of a hearing if the prime minister publicly trashes any alternative position before the hearing has even begun, especially in the limited amount of time allotted for it?
If there is no intent to listen during a hearing, if the prime minister and his lackey Steinitz market the plan 24/7, and if the gas monopoly takes out ads supporting the plan in financial newspapers – the only ones who can influence what happens are members of the social protest movement. Or perhaps the press – if it can expose the marketing campaign as full of spin and inaccuracies.
One of the central fallacies here is connected to the story of global natural gas prices. Steinitz, when he engages in his daily marketing talk, is usually quick to compare gas prices in Israel and abroad, which is what he seems to think is his strongest arguing point. This is no coincidence. The gas issue is complex. Many people don’t even know gas is already flowing into the Israel Electric Corporation and the large factories. For his part, Steinitz realizes that the one thing that has perhaps seeped into the public consciousness is the question of consumer gas prices. The signs upon which are written the figure $3, that were being held up at demonstrations in recent weeks, apparently terrified him and people from the gas monopoly.
It’s no coincidence that Noble Energy published tables comparing gas prices in Israel and abroad a few days ago. No doubt we are witnessing a marketing and image blitz, and the weird thing is that the government and the gas companies are on one side, holding an identical position, while the public is on the other side.
It's a strange and hard-to-believe phenomenon that such identical interests and messages being exchanged between the government and a private monopoly won’t lead to some form of thorough scrutiny.
And what does Steinitz say? The energy minister explains that gas prices in Israel are lower than in most OECD countries – and then he pulls out his ace: Not only is Israeli gas cheaper than in most developed nations, it is even cheap in terms of the gas-producing nations themselves. From here, Steinitz tries to lead his listeners to the conclusion that the current price and ceiling of $5.40 per BTU as introduced by the scheme are good for the public.
But, there is a problem with Steinitz’s data, as well as that published by Noble Energy. The numbers they cite are out of date, valid for 2014, since which time world gas prices have plummeted by 20%-50%, by one-third on average, while Israeli prices have remained almost the same.
What happened? It’s pretty simple. There has been a dramatic drop in oil and coal prices during this period, and these caused a similar drop in world gas prices, both in countries that import gas via pipelines and those that import liquid gas in tankers. And what about us? Ah, gas prices have remained steady because the monopoly’s main customer, the Israel Electric Corporation, signed a 15-year contract, according to which the price can only rise.
Not only can the price rise to, say, $8 because of a mechanism linking prices to the U.S. inflation index with an addition of 1% – it’s impossible to reduce them, even by means of a new plan.
When taking current gas prices into account, we discover that the picture is different from what Steinitz describes. We find that the gas price in the United States, Canada and Australia is already half the price in Israel, that the price in Europe wavers between $6 and $7 per BTU, and that even in the Far East – a region in which there are no gas reserves or pipelines, and most of the supply arrives in liquid form in tankers – the price sank to a price of $7-$8 per BTU.
If this trend continues, and that’s the widespread assumption in the energy industry, within a short time Israel will be one of the most expensive countries in the world, certainly compared to gas producers, and even compared to countries that import all their gas.
One can extrapolate about the Israeli gas monopoly’s profits vis-a-vis other gas producers abroad based on these prices. The price in Europe includes costs of transporting gas across thousands of kilometers via pipelines from Russia, while the price in the Far East includes costs of liquefying gas ($2-$3 per BTU) and delivery by ship (another $1-$2). The upshot: While the cost of local production is 50 cents and gas is sold at a price of over $5 per BTU, gas is sold worldwide to consumers for $6-$7 which include production and delivery costs that can reach $4 per BTU.
You don’t need to be an economist or gas expert to understand that the profitability of the Israeli monopoly is crazy compared to the rest of the world. Noble Energy’s stock market reports, showing that the company's Tamar gas-drilling project is by far its most profitable operation, also attest to this fact. It is particularly profitable compared to the entire industry.
Add to this the fact that Noble already sold the IEC gas at $3 (when there was competition in Israel thanks to the Egyptian gas pipeline), the fact that the gas companies told their banks that they would profit handsomely and would be able to repay their loans even at a level of $4 – and it’s totally clear that the attempts to compare Israeli gas prices to global gas prices are nothing but a marketing gimmick to remove the price issue from the public agenda.
In practice, the real story of the gas price is that the international comparisons are not a good basis for making decisions. The price in every country is a result of many factors: distance from reserves, the existence of pipelines, the cost of production, the scale of demand, and of course the results of negotiations between producers and consumers, which in turn are based on their strength relative to each market.
Thus, there’s not much point in comparing prices in Israel with prices abroad. The price needs to be determined according to competition, price regulation, or some combination thereof. But if the prime minster and energy minister decide, despite everything, to market their gas plan by comparing world prices – they can’t do so with out-of-date data, in a period when the market completely changed and prices plummeted.
They can’t talk about prices in Israel compared to the world without holding a parallel debate on the profitability of the local gas monopoly compared to energy companies in other countries, and they can’t talk about comparing international prices without detailing the costs and the market structure in those countries they are comparing to Israel.
The public is not a gas expert and it is perhaps apathetic, but it isn’t stupid.