Gov’t Moves Closer to an Agreed Framework for Natural Gas Industry

Officials agree on three principals ahead of antitrust hearing this week.

Albatross

The government appeared to be moving toward an agreed-upon stance toward the natural gas cartel after a meeting on Monday of top officials from the Antitrust Authority, the treasury and the Prime Minsters Office.

Although they have yet to reach a unified policy stance, officials agreed on three central principles.

The first calls for Yitzhak Tshuva’s Delek Group to sell its 31.3% stake in the Tamar natural gas field, Israel’s second largest.

The second would bar cross holdings between Delek and Noble Energy, Delek’s Texas-based partner in Tamar and the larger Leviathan field. That would mean the two companies could not jointly own stakes in the much smaller Karish and Tanin fields either.

Finally, officials agreed that Noble Energy’s share of the domestic gas market would have to be constrained. This could be achieved one of two ways — either by requiring the U.S. company to sell its Tamar stake or by barring it from selling all or part of the gas it is entitled to from Tamar and Leviathan in the domestic market.

Officials face a dilemma on Noble’s role because it is the operating partner in both fields and it will likely be difficult to find a company with Noble’s size, scale and experience to replace it.

The deliberations, which were attended by Antitrust Commissioner David Gilo, Eugene Kandel, chairman of the National Economic Council, Amir Levi, the treasury budget chief, and deputy attorney general Avi Licht, among others, come as the government seeks a new policy for Israel’s natural gas industry.

They came a day before Gilo is due to hold a hearing to devise a new policy on the Noble-Delek gas cartel. Last month, Gilo voided an agreement he had reached with the companies that would have let them retain control of Tamar and Leviathan, so long as they sold their stake in the two smaller fields.

Tshuva is reportedly ready to sell Delek’s Tamar stake so long as the company can keep Leviathan. But he has conditioned that on his being able to retain stakes in Karish and Tanin, whose 70 billion cubic meters of reserves are about equal to what he would lose surrendering Tamar.

In yesterday’s meeting, officials appeared adamant that Delek could not keep the two small fields and that they would have to be sold to a new market entrant. That would leave Delek with a single gas holding, its 45% share in Leviathan.

Regulators would prefer that Noble sell its 36% stake in Tamar to a new market entrant, rather than it sells its Leviathan holding. The problem is finding an overseas company that could take its place, especially if regulatory policy hasn’t been clearly established.

Furthermore, a company can be engaged in drilling if it doesn’t have an equity stake in the project. That being the case, Gilo has proposed reducing Noble’s stake in Tamar and Leviathan while allowing it to remain a major shareholder. Other officials, however, opposed the idea, saying it would fail to remove the problem of cross-holdings.

The hearings on the future of the gas cartel are due to begin today and continue tomorrow in Jerusalem. While officials were meeting among themselves, Delek and Noble executives also met with government officials in a bid to find a formula for disbanding the cartel.

Noble has not been a party to the talks. Instead it has retained a battery of lawyers in what it plans as an aggressive legal fight against the Antitrust Authority. It has threatened to turn to international arbitration failing an acceptable outcome in Israel.