Why Noble Energy Should Be Thanking the Israeli Protesters

Without the protesters, Noble and Delek Group would find themselves owing Woodside or a similar company $9 billion for building the floating natural gas platform before Gilo reversed himself on antitrust issues.

Offshore Leviathan natural gas drilling site.
Albatross

David Stover, the CEO of Noble Energy, visited Israel last week, meeting with Prime Minister Benjamin Netanyahu and Energy Minister Yuval Steinetz. The timing seemed deliberate, ahead of the High Court of Justice ruling on the natural gas deal.

Noble executives are concerned. The delays in the court’s ruling are raising fears that the judges can’t agree or are having second thoughts. But if Stover had wanted to do the right thing, there are other figures he could have visited, brought them flowers and thanks for their untiring efforts over the past year. They are former antitrust commissioner David Gilo and protest leader Orly Bar-Lev.

Bar-Lev last year humiliated the gas duopoly more than anyone else in the protests against the gas deal. Bar-Lev, one of the most prominent figures in the Social Justice Situation Room movement, not only organized the anti-gas framework protests, she wrote scathing posts on Facebook, appeared in the media and interrupted energy conferences and speeches. Bar-Lev and a collection of determined protesters were the main force putting the gas framework on the public agenda and bringing out the largest number of protesters since the social protests of 2011.

So why should David Stover thank Bar-Lev and David Gilo, the former antitrust commissioner, who also acted to overturn the gas industry?

Because otherwise, Noble and Delek Group would find themselves owing the Australian company Woodside or a similar company something like $9 billion for building the floating natural gas platform among other costs before Gilo reversed himself on antitrust issues.

Stover would find himself right now having no one to sell his gas to after investing those billions of dollars, which had been based on the assumption that energy prices would remain high. As we know, they didn’t

Not only would the investment in Leviathan not deliver the hoped for return, he would have paid too much because just as gas prices sank, so did the costs of drilling and shipping plunged.

Like many other second-tier energy companies, Noble is not in glowing financial health, to say the least. This is the reason its share price has tanked, and Standard & Poor’s lowered its outlook from Stable to Negative. With billions of additional dollars of debt and a gas field whose future is unclear, it is likely that Noble’s situation would be even worse.

Right now, Stover has no reason to hurry and invest the huge amount of capital needed to develop the Leviathan field. To the contrary, he has every reason to pocket the high prices he is getting from Israeli customers for gas the Tamar field.

Tamar, as Noble reports make quite clear, is Noble’s most profitable asset, thanks to the contracts signed with the Israel Electric Corporation and the fact that the vast majority of investments have already been made in it. Noble’s interest is to pump out as much gas as possible from Tamar as quickly as possible. It’s the reason that the main achievement of the gas framework for Noble was the government’s approval to export some of Tamar’s gas – an option that had not existed before.

The Leviathan problem

Leviathan, by contrast, is a problem for Noble. It requires billions of dollars to get it into production, but there are no assured buyers, and there’s no knowing what price the gas will fetch. Thus, their main task now is to influence the government and public opinion to keep the expensive contracts with the IEC while postponing the development of Leviathan.

There are accepted methods, like lobbyists, public relations people, advertising, funding “research” and influencing the media. They hide behind the “right of ownership” and threats of suing to deter any debate about reopening the contacts with the IEC.

Two weeks ago, for example, there was a report about governments around the world asking their suppliers to reopen long-term gas supply contracts because of the fall in global prices, but this issue went nowhere in the Israeli public debate – even though it’s the only thing that could lower immediately every Israeli’s electricity bill. India, for example, reopened its 25-year contract and obtained a 50% discount on the original price. According to a Forbes magazine report, the chairman of the government oil and gas company in China recently said he sought to change the pricing for liquefied natural gas contracts from Qatar. So why is no one talking about it in Israel?

Facing government pressure, Noble and Delek are interested in showing that Leviathan’s development is progressing. So, while waiting for the High Court decision, they hold intensive talks with various energy companies to show the judges all the business they are doing and how it will all stop if they touch it with one ruling on the gas framework.

However, at the same time Noble and Delek are doing things precisely to stall Leviathan’s development. Noble executives lately approached environmentalists involved in defense of the maritime environment and asked to discuss with them the ecological repercussions of establishing platforms in northern Israel – close to the shore, in addition to those operating opposite Ashdod.

Excuse me? Since when do gas companies want to talk about the environmental impact of their activity, and years before an additional platform is built? Has the world order gone mad? Are fish flying and birds swimming?

Ah, probably not. Noble officials know that if they raise fears of ecological damage, the public and government ministries will be forced to commence a long process of investigations, committees and hearings, a process that could delay giving permits to develop Leviathan, of course without the gas monopoly having a hand in it.

No one ever said that gas executives are a bunch of unsophisticated boors who don’t understand how Israeli bureaucracy works. We wouldn’t be surprised if in another year or two you will see them blaming the “greens” opposing the construction of platforms and gas delivery facilities as an excuse that they cannot complete development of Leviathan in the time promised in the deal.

A little more than three months ago, TheMarker demanded that the finance and energy ministries as well as the National Economic Council and Bank of Israel publish their calculations regarding the scope of tax revenues that Israeli citizens would receive from the gas fields. The reason for the request was the gap between the promises of the prime minister and his ministers, who have been citing for more than a year numbers in the hundreds of billions that would revolutionize education, health and welfare, and the questions arising from the dramatic crash in global gas prices. Indeed, if the price is cut by 60% to 70%, don’t the prime minister and the economic ministries need to update their forecasts for and promises to the citizens? We wrote in the request, “Show us the Excel sheets.”

The call was not answered, despite the spirit of freedom of information laws. Even Knesset members turned to the government and Bank of Israel in the wake of TheMarker’s inquiry, to see the calculations.

But even if the Excel sheets are not released, there are those who are capable of conducting simulations based on various base gas prices, corresponding to current gas prices. According to those simulations, if the export gas price will be $3 per BTU in the coming decades (for comparison, the IEC pays about $5 while the U.S. exports gas for $2 to $3), then the government can expect to receive $30 billion by 2040, and if the price is even lower, $2.50, Israel will see only $25 billion. Even if the numbers would be twice as much, there is still a huge gap between them and political declarations.

These are not negligible numbers, but only through 2040 – that is to say, over the coming 25 years. They are also not the numbers that will turn Israel into Norway. We will not sit every day on the beach and look at our platforms. A billion or two billion dollars a year that will be added to the sovereignty fund the state is supposed to establish are important, but in the same measure these numbers make it clear that the dreams the prime minister sold the public about a revolution in education, health and welfare are exactly that – dreams.