Votes on Gas Deal Delayed as Israeli Government Adjusts Terms

Amendments would lower the ceiling price to $5 per million BTU and set sanctions for any delay in developing the giant Leviathan field.

Albatross

For the second time in a month, the government is delaying bringing the natural gas framework to the cabinet and the Knesset, this time because it plans to make changes including a reduction in the ceiling price for gas.

At a meeting late into Monday night at Prime Minister Benjamin Netanyahu’s office, officials agreed to amend the pricing formula for natural gas and a mechanism to ensure that the giant Leviathan gas field is ready to begin production by the July 2019 deadline set in the framework.

Under proposals brought by the treasury’s budget division at the last minute, the ceiling price for natural gas would be lowered to $5 per million British thermal units from $5.40. In addition, the Leviathan partners — mainly Israel’s Delek Group and Texas-based Noble Energy — would face outright price controls and other sanctions if they failed to meet the deadline for getting the field online.

“It was decided in consultation with the prime minister to postpone the approval of the cabinet and Knesset vote to allow for an orderly process of discussion,” Energy Minster Yuval Steinitz said in a statement Tuesday, putting off a cabinet vote previously slated for Wednesday.

The framework has come under withering criticism — in part by Antitrust Commissioner David Gilo — for failing to ensure adequate competition in the gas market to keep prices low.

Also at the Monday night meeting, officials discussed ways the government could provide support for the buyers of the tiny Karish and Tanin fields; one way would be to guarantee them contracts.

Under the terms of the framework, Delek and Noble are required to sell the two fields as a way of chipping away at their control over Israel’s natural gas reserves. The two control Tamar, the biggest field in production right now, as well as Leviathan. The framework agreement calls for Delek to sell its Tamar stake within six years and for Noble to reduce its holding.

Gas shares fell Tuesday, a day of strong gains for the rest of the market. The two Delek units as well as Ratio, which is also a partner in Leviathan, all posted drops of between 1.9% and 2%.

Representatives of the gas companies, which have said in recent weeks they oppose any changes to the framework, met for talks with government negotiators under instructions from the prime minister to try to reach a consensus on the new amendments.

In the meantime, Deputy Attorney General Avi Licht said the government would have to put off the cabinet and Knesset votes to provide time to craft the amendments in the proper legal and legislative terms.

Also, the treasury proposals are opposed by the Energy Ministry and the National Economic Council.

In any case, the government faces a tight timetable. It has to bring the framework to the Knesset by August 17, after which lawmakers go into recess until September. After the two-week delay, the framework vote will be delayed by at least another day because MKs have to approve the first reading of the budget and accompanying Economic Arrangements Law.

Netanyahu and others are concerned that repeated delays in getting the framework approved will delay development of Leviathan and leave Israel dangerously reliant on a single field for its gas needs.

One alternative officials had explored was avoiding a vote on the framework for now; for example, by voting on a very general proposal or leaving some controversial sections out and voting on them later. In the end, with public opinion so critical of both the framework’s details and procedures for approval, officials opted to delay the votes.