Netanyahu Seeks to Loosen Gas Exports Quota to Ensure Egypt Deal

Proposals in framework may endanger Israeli energy security.

Reuters

Prime Minister Benjamin Netanyahu is working to ease the ceiling on Israel’s natural gas exports, to ensure that the Noble Energy/Delek Group cartel can supply to a European liquefied natural gas plant based in Egypt. The changes may endanger Israel’s energy security.

Netanyahu lobbied hard for the ceiling approved by the cabinet in 2013, which limited exports to 40% of all Israel’s gas reserves. He defeated social activists and ministers who wanted a lower export quota, and recruited then-Bank of Israel governor Stanley Fischer to his side and won over the cabinet.

“We’ve arrived at the proper balance,” Netanyahu said at the time.

But two years later, Netanyahu is seeking to make 12 amendments to the export rules as part of the new natural gas framework. Now he says the government is preparing what he recently termed the “best and wisest solution.”

The reason for the policy turnaround is to ensure that a deal can go through with Spain’s Union Fenosa Gas, which owns a liquefied natural gas plant in northern Egypt, together with the Italian energy company Eni.

Fourteen months ago, Union Fenosa signed a memorandum of understanding with the Tamar partners to buy 67.5 billion cubic meters of gas – or 24% of the field’s reserves – over the next 15 years, worth $15 billion.

Union Fenosa is interested in Israeli gas because its plant, which exports its gas as LNG mainly to Europe, has been idle for some time because Egyptian gas production is in decline and is being used for domestic needs only.

“Fenosa has made it clear it wants the gas by 2017,” an Israeli government official, who asked not be identified, said recently.

Under the government’s 2013 decision, Tamar was designated a strategic asset for the economy because it would be Israel’s almost exclusive source of natural gas for years to come. Leviathan, a much larger field, was years away from development.

As a result, Energy Ministry officials recommended that the ceiling on Tamar exports be set at a lower level than for Leviathan, a figure that worked out at about 20% of its reserves. Leviathan would be able to export between 50% and 75%.

Moreover, it said Tamar exports would be strictly limited to just the 20 billion cubic meters that Jordan desperately needs, until a pipeline is completed linking Leviathan gas to the national pipeline network and thereby ensuring a second source of gas for the Israeli economy.

The 2013 decision was difficult for the Tamar partners, who were forced to abandon an agreement to sell 84 billion cubic meters to Russia’s Gazprom. What compensated them was the knowledge that, while they were giving up sales for their 64%-owned Tamar field, they controlled 85% of Leviathan.

Isramco and Alon Gas, who are minority partners in Tamar but not Leviathan, appealed to the High Court of Justice. The state defended the decision, saying further changes would create “uncertainty” and hurt the “public interest.” But Netanyahu has chosen to change the export quota again.

At the heart of the changes is a more generous definition of how to measure the gas that serves as the basis for the 60-40 split between domestic and export. Under the 2013 decision, Israel had to be ensured gas reserves of 540 billion cubic meters – enough to serve the economy for 29 years. The gas that could be counted included so-called “proven” and “probable” reserves.

Under the amendments, gas reserves will be calculated to include “contingent,” or expected, reserves, enabling exports to start earlier.

Another change will allow the Tamar partners to export larger amounts of gas even before the Leviathan pipeline has been laid and in operation. The change is being proposed, even though the Leviathan partners have frozen development of the field while they await the government’s new decision – meaning it won’t be online as early as had been expected.