Israel Presents Final Plan to Overhaul Natural Gas Sector

Plan aims to limit the hold of Israel's Delek Group and Houston-based Noble Energy by breaking up the gas monopoly into five or six entities.

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

Two months after Antitrust Commissioner David Gilo announced that he intended to break up the natural gas monopoly that controls the production and marketing of Israel’s large natural gas reserves in offshore waters in the Mediterranean, on Wednesday the government presented the two major stakeholders in the offshore gas sector with what it says is its final plan on the matter.

The plan is an effort to change the structure of the natural gas sector in the country, and in the process to limit the power of Israel’s Delek Group and of Houston-based Noble Energy, the major stakeholders in the sector.

It was reached after a breakthrough among the various players at government agencies recently that paved the way to a consensus among officials at the Israel Antitrust Authority, the Finance Ministry, the Prime Minister’s Office, and the ministries of justice and energy.

The two firms discovered the large Leviathan and Tamar fields in Israeli waters in the eastern Mediterranean in 2009 and 2010, turning Israel into a potential energy exporter instead of an import-dependent country. Delek and Noble are the main shareholders in both gas fields.

The plan is based on a blueprint of principles that was initially disclosed by TheMarker a month ago and provides for a breakup of the gas monopoly into five or six entities, each of which would separately sell a portion of the gas.

It would leave the Delek Group as a partner only in Leviathan and not in the smaller Tamar field, and calls for Delek to sell its 31.25% stake in Tamar to a new player in the market within three years. It would also require both Delek and Noble to sell their ownership in two smaller offshore fields, Karish and Tanin, within a year after signing an agreement with the government.

The government is now awaiting a response from Delek and Noble. Although the companies are expected to voice initial opposition, it is thought that they will then put out feelers regarding changes. Delek is expected to take a pragmatic approach, and analysts are largely in the dark about Noble’s stance.

The plan would bar Noble Energy from selling its gas from the Tamar field on the domestic Israeli market, in an effort to increase competition. It would have the partners competing against one another in the sale of their relative portions of the gas from the Leviathan site. With respect to the Tamar site, the government is still considering whether it should put the remaining gas in the reserve at the disposal of a single player when it comes to sales of gas on the domestic Israeli market.

During the interim period, Noble and Delek would remain passive partners without the right to engage in negotiations over the sale of gas from Leviathan.

Although agreement has been reached among the government players, the plan is still not complete and lacks a large number of technical details. The plan was officially presented to the companies yesterday, after weeks of intensive negotiations with them.

It was presented as a final offer, meaning that the alternative would be a declaration that the current ownership structure constitutes a restraint of trade that would prompt unilateral action by the government.

It is possible, however, that the companies will still attempt to make changes to improve their position, even though from the state’s standpoint, the plan is seen as moderate and conciliatory.

Reuters contributed to this report.