Antitrust Chief Warns He May Break Up Natural Gas Monopoly

In surprise move, David Gilo says he is reconsidering compromise that enabled Delek and Noble to retain control of the giant Tamar and Leviathan fields.

Offshore Leviathan natural gas drilling site.
Albatross

Antitrust Commissioner David Gilo warned Monday he was reconsidering his decision from three years ago to allow Noble Energy and Delek Group to control the giant Tamar and Leviathan natural gas fields.

Gilo met with the top executives of the two companies Monday to discuss the issue, as Delek Group shares tumbled on the Tel Aviv Stock Exchange and Noble shares dipped in New York.

The Antitrust Authority notified the two companies that Gilo was considering designating the partnerships controlling the two fields a cartel and petitioning the Antitrust Tribunal to order that control of the two fields be divided.

The notice came just days before Gilo was due to seek the tribunal’s permission to approve the compromise hammered out three years ago to Noble and Delek to control the gas fields, and two months after Delek and Noble submitted a first-phase development plan that came with a $6.5 billion price tag.

Although it was not clear that Gilo would end up reversing his earlier decision, the stock market reacted quickly and decisively to the news, which would force the fields’ partners to revise the plans to develop reserves and find export markets.

The Delek Group holding company, which is controlled by Yitzhak Tshuva, has been divesting its non-energy assets to concentrate on its natural gas business. On Monday it closed down 6.3% at 1,090 shekels ($278.64).

Delek Drilling and Avner, two Delek Group subsidiaries, ended down 6.1% and 5.3% respectively, at 16.50 and 2.97 shekels.

Isramco, which holds a 29% stake in the Tamar field, also fell, losing 2.2% to end at 75 agorot. Ratio, which has a 15% stake in Leviathan, suffered the biggest drop of all, plunging 9.5% to end at 37 agrorot.

In New York, shares of Noble Energy were down 1.5% at $50.41 in late morning trading.

Gilo’s announcement comes after months of sharp criticism in the media and the Knesset about the compromise that let the two energy companies retain control of Tamar and Leviathan, which together contain some 840 billion cubic meters of gas reserves off Israel’s Mediterranean coast.

This isn’t the first time Gilo is changing his mind. He has previously called the Delek-Noble partnership a “cartel which arouses concerns it will undermine competition in the [energy] sector.”

All the same, he allowed the agreement three years ago partly because he feared a lengthy antitrust battle would delay the field’s development.

But Gilo has have been having second thoughts about the compromise that let the gas monopoly remain intact. Among other things, demand for gas has grown about 10% less than forecast, indicating that the economy at large will not be harmed if development of Leviathan is delayed a few years.

The Calcalist financial daily reported that Delek produced figures at Monday’s meeting showing Israeli energy prices were among the lowest in the world. Based on a measure of 1 million British Thermal Units, Israeli prices ranged between $5.50 and $6, compared with $9-$12 in most of Europe and $4-$8 in the United States, where taxes are much lower.

Discovered in 2010, Leviathan is the world’s largest offshore gas find of the past decade and is expected not only to provide Israel with much of its energy but to turn it into a gas exporter.

Tamar began producing gas in 2013, and production was slated to begin at Leviathan in 2017.

Under the compromise now being reconsidered, Delek and Noble were supposed to sell their rights in the much smaller Karish and Tanin offshore fields to a third party. The two smaller fields, which have combined estimated reserves of just 70 billion cubic meters of gas, would be barred from exporting their gas, giving the rights to Leviathan.

The compromise enabled Delek and Noble to retain stakes of 85% in Leviathan and 67% in Tamar. But the agreement requires the consent of the Antitrust Tribunal, which would have to determine that allowing the monopoly to stand would not damage the economy at large.

The partners in Tamar – Delek and Noble – won court approval to operate the field jointly in 2006, but they never approached the court with the same petition for the much larger Leviathan field, as TheMarker revealed in a 2011 story.

The Leviathan partners were called to a hearing at which they presented their case for why the partnership should not be declared a cartel. While the hearing formally ended in May 2012, the discussions continued long afterward.