Israeli Government to Offer Leviathan Gas Partners Antitrust Immunity for 15 Years

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A protest against the gas monopoly in Tel Aviv, June 28, 2015.Credit: Ofer Vaknin

The government has awarded the Leviathan gas field partners one more concession as it wraps up the final details of a plan to ostensibly ensure competition in the industry – a promise not to do anything to upset the two companies’ control of Israel’s biggest reservoir of natural gas for the next 15 years – TheMarker has learned.

The government’s undertaking means that Delek Group, Noble Energy and the smaller company Ratio will be able to keep their holdings in Leviathan as they are until 2030, without fear of antitrust action even if the field were to become Israel’s sole source of natural gas.

They will also be allowed to sell the gas produced at Leviathan jointly, without fear of the government forcing them to set up independent, competing marketing channels as it considered doing earlier this year.

The latest concession comes as the Knesset is due to vote today to approve a cabinet decision to exempt the gas industry from antitrust scrutiny for national security reasons, the last legal step in getting the competition package completed and ready to present to he energy companies. The government has been fighting with the energy companies and, just as much, officials have been fighting among themselves about how to ensure competition in an industry where Delek and Noble control nearly all of Israel’s reserves. Antitrust Commissioner David Gilo sparked the debate last December after rescinding an earlier agreement to allow the two companies to retain most of their holdings.

Concerns about the lack of competition and high prices for gas are counterbalanced by worries that development of Leviathan won’t be completed soon enough, leaving the Israeli economy dangerously dependent on a single source of gas. Nervousness about the delays in reaching a deal on competition caused energy stocks to drop sharply Sunday.

Delek, a holding company controlled by Yitzhak Tshuva, holds 45% of Leviathan, which will be Israel’s biggest gas field when it is developed, while Texas-based Noble holds 40% and Ratio 15%. Delek and Noble also control the Tamar field, which is now Israel’s biggest.

The concessions that the government has made are exacerbating concerns that Israel will lose control over its gas resources to the two companies. Thousands of demonstrators gathered in Tel Aviv Saturday night to protest the government’s plan, which has provoked criticism from politicians and from Gilo, who announced last month he would resign over the issue.

When Economy Minister Arye Dery, who has final word on antitrust issues, agreed to support overriding Gilo’s authority on natural gas matters, he agreed only on condition that the gas companies’ exemption from antitrust scrutiny would not exceed 10 years.

The offer of 15 years hinges on the energy companies agreeing to the government’s entire decision on the structure of the industry.

The terms of the government’s plans to deal with the gas cartel have yet to be formally released, but they are believed to call for Delek and Noble to sell their stakes in the much smaller Karish and Tanin fields. In addition, Delek will be required sell its 32% holding in Tamar, while Noble would dilute its stake from 36% to 25%.

However, as TheMarker learned last week, the two companies will be given six years to sell their Tamar stakes. That means Tamar will have a monopoly over Israeli natural gas until 2019, the earliest possible date that Leviathan will come on line.

Meantime, the Tamar partners will be able to sign long-term contracts to sell the field’s gas while moving ahead to sign a giant contract with the Spanish company Union Fenosa to export gas to its liquefied natural gas plant in Egypt. Israel will help cover the cost of building the undersea pipeline delivering the gas to Egypt by giving the Tamar partners tax breaks.

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