Israel Bows to Firms' Demand to Raise Domestic Natural Gas Prices

Giving in on the pricing issue follows the decision not to officially regulate gas prices, opting instead for unofficial regulation by electricity producers only, through the Electricity Authority.

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

The government has given in to Delek and Noble Energy demands to raise the maximum price it had set for natural gas for the domestic market. The price of the gas, which the two firms extract from the Tamar field, will be higher than what the Finance Ministry demanded.

The government gave in after Delek and Noble Energy staunchly refused to accept the lower domestic price limit. The government representatives, however, decided not to force the lower price on the companies, although they had the legal authority to do so. The lower price is also the result of negotiations that took place only four months ago, and also represents a compromise agreement. The capitulation was backed by the National Economic Council, subordinate to the Prime Minister’s Office, as well as representatives of the Energy and Water Resources Ministry, subordinate to minister Yuval Steinitz, who agreed to soften their position, abandoning the Finance Ministry in the negotiations. Finance Minister Moshe Kahlon relinquished his authority over the issue to Prime Minister Benjamin Netanyahu, leaving finance ministry officials involved in the negotiations with no political backing.

Giving in on the pricing issue follows the government’s decision not to officially regulate gas prices, opting instead for unofficial regulation by electricity producers only, through the Electricity Authority. The government also gave in regarding a decision to regulate the gas prices for a limited time only, until the structural changes take place (roughly six years).

If that wasn’t enough, the government is also expected to back down on its demand to open the Tamar monopoly’s contract and change the gas prices that it sets. In doing so, the government will seemingly eternalize the Tamar monopoly, and its contract will be a benchmark should the natural gas market open up to competition in the future.

The bottom line is that the government has given in to almost all of the gas monopoly’s demands. There will be no formal price regulation, the maximum prices will not be lowered, any price reductions wont be dramatic, and contracts will not be altered.

It should be noted that the government’s capitulation to the gas companies on the price issue follows the fairly reasonable compromise regarding the structural changes to the gas market – after accepting Noble Energy’s monopoly – as well as softening the limits on gas exports, which was approved by the government two years ago.