Israel to Offer Easier Terms for Ending Gas Cartel

New proposals to be offered to Tamar and Leviathan partners this week are strongly opposed by antitrust chief

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

Israeli government negotiators are set to meet with representatives of Delek Group and Noble Energy this week, offering a new and much less onerous plan for putting an end to the natural gas cartel the two companies control.

The two companies, which control the Tamar and Leviathan offshore gas fields, had rejected a previous plan offered by the state in February.

Under the new proposal, Delek – the Israeli holding company controlled by property tycoon Yitzhak Tshuva – would still have to sell all gas holdings except its 45% stake in Leviathan, which is still under development but promises to be Israel’s largest discovery by far. The conditions and timing for divesting its other holdings, principally Tamar – currently Israel’s largest field – would be substantially eased.

TheMarker has learned that the ministries involved in developing a framework – mainly the finance and energy ministries, as well as the Prime Minister’s Office – would require Delek to divest Tamar after six years, which would mean that the cartel would continue to function until 2021 or 2022.

Noble, the Texas-based energy company that acts as operating partner for the two fields, would be subject to few restrictions on Israeli energy business. It would be permitted to maintain its stake in Tamar and Leviathan, and sell gas simultaneously to the Israeli market from both.

However, Noble would have to reduce its Tamar stake to 25% from 36%, and sell its entire share in the much smaller Karish and Tanin fields. Delek would also have to sell its Karish and Tanin holdings.

Officials are not all in agreement on the new proposal.

Ministry officials say they prefer the new proposal, noting it is more likely to win the consent of Delek and Noble, and ensure a smooth process for ending the cartel without delaying development of the field.

However, Antitrust Commissioner David Gilo – who started the decartelization process last December, when he voided an earlier agreement allowing the two companies to retain most of their holdings – is strongly opposed to the new proposal. Sources said he is refusing to sign off on it, or to participate in meeting with the two companies.

Even inside the Antitrust Authority, though, officials are not siding with Gilo. Last week, two top advisers – the authority’s chief economist, Assaf Eilat, and chief legal adviser, Ori Schwartz – expressed reservations about Gilo’s stance. A spokesman for the authority declined to comment.

Gilo could now turn unilaterally to the antitrust court and ask it to declare the Leviathan partnership a monopoly, and seek to break it up on the basis of his original plan. But sources said that, for now, Gilo has no plans to act. Instead, he will wait until the next government is sworn in and appeal directly to the new finance and energy ministers.

But officials in the finance and energy ministries, and in the PMO, also plan to appeal directly to the relevant ministers too, sources said.

Right now, Delek and Noble control 70% of Israel’s gas reserves (or 712 billion cubic meters). Under the proposal offered by Gilo in February, Delek and Noble would each have a 27.5% stake (or 280 bcm each) of all Israeli gas, with new companies controlling 14.5%.

The revised government proposal would leave Delek and Noble with 60% of all gas reserves and the new companies getting 9.5%.

Yesterday, meanwhile, Israel Electric Corporation signed a deal to purchase more natural gas from the Tamar field through 2028, the partners in Tamar reported. IEC will purchase up to 87 bcm of gas from the offshore gas field – in line with the previously signed 15-year deal to buy between 42.5 and 82.5 bcm starting in 2013 (when Tamar started production) and an option to raise it to as much as 99 bcm.

With the much larger Leviathan site and a number of smaller wells slated to come on line in the coming years, IEC opted to only partly exercise its option. The additional gas under the option is worth an estimated $6 billion, for a total deal around $23 billion.

Reuters contributed to this report.