A day after the High Court of Justice struck down a key element of the natural gas framework, the energy companies and Prime Minister Benjamin Netanyahu both put on a brave face on Monday, saying they were determined to move ahead with development of the Leviathan gas field.
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But the optimism wasn’t shared by the stock market or industry analysts, and Netanyahu’s plans to find a legislative solution to the objections raised by the court to the framework were encountering resistance.
Netanyahu told a stormy meeting of his Likud Knesset faction on Monday that he planned to “find legal means to deal with the results of a faulty [court] decision.”
But Haim Katz, his social affairs minister, quickly rejected a proposal by the prime minister that he resign from the Knesset and enable Yehuda Glick – next on the Likud roster – to take his place to ensure a Knesset majority for legislating the stability clause of the gas framework.
The coalition has only 61 seats in the 120-member Knesset and Katz has recused himself from voting on gas legislation, citing personal ties with Kobi Maimon, a tycoon with gas interests.
Netanyahu would also need at least one of the opposition parties to either support the legislation or abstain. However, compounding Netanyahu’s political problems, Avigdor Lieberman, head of the opposition Yisrael Beiteinu party, signaled that his faction wouldn’t readily agree to support the legislation.
“Regarding the gas framework, there shouldn’t be any illusion – we aren’t going to solve the coalition’s problems at our expense,” Lieberman told the Knesset. “Gas is Netanyahu’s problem we won’t support or save the coalition.”
Meanwhile, the gas companies offered a restrained reaction. Noble Energy called the court’s decision “disappointing,” and said it risked causing a delay in the $6-billion development of Leviathan.
“Development of a project of this magnitude, where large investments are to be made over multiple years, requires Israel to provide a stable investment climate,” Noble CEO David Stover said. “We will vigorously defend our rights related to our assets to protect shareholder value.
“It is now up to the government of Israel to deliver a solution which at least meets the terms of the framework, and to do so quickly,” he added.
Yossi Abu, CEO of Delek Group subsidiaries Delek Drilling and Avner, said the companies would work with the government to find an alternative to the stability clause, and push ahead with development plans in the hope of avoiding delays. “We are focusing on finding a solution in order to maintain the timetable that we put forward,” Abu told Reuters, adding that he hoped the decision would not hurt export opportunities.
But, shares of energy companies tanked on Monday, with Ratio leading the pack on an 11.5% decline to 22 agorot (5.7 cents), Avner down 7.3% to 2.10 shekels and Delek Group down 3.9% to 608 shekels on the Tel Aviv Stock Exchange. In New York, Texas-based Noble Energy shares had lost 9% by midafternoon local time to $29.44.
“The gas companies signaled over the day that the situation isn’t so terrible, because the High Court approved the entire framework except for the stability clause, and they believe the matter can be solved and that Leviathan will be developed on time,” said Noam Pinko, of Psagot Investment House.
“But it’s hard to know where the shares are headed, because the uncertainty has risen a notch. Even if they succeed in solving the problem, it will take several months,” he added.
The High Court on Sunday gave a nod to nearly all the natural gas framework – an agreement the government reached with the gas companies last year setting out the final terms governing the industry – except for the controversial stability clause. It ruled that the government had overstepped its authority with the clause, which bars the state from imposing regulatory or tax changes for the next 10 years. The court gave the government a year to come up with an alternative arrangement for the state to provide stability assurances.
Leviathan at stake
At stake is development of the Leviathan natural gas field in the Mediterranean, which has Israel’s largest reserves and, under a timetable set out in the framework, is supposed to be online by 2019.
The government wants to develop the field to have enough gas to export and ensure that Israel, which is now reliant solely on the Tamar gas field, has more than a single source of gas. But critics, including the four groups that petitioned the High Court, say the way the industry is now structured gives Delek and Noble a monopoly on domestic natural gas and has led to excessively high prices.
Energy analysts suggested the government and gas companies would return to the negotiating table.
Eldad Tamir, CEO of the Tamir Fishman investment house, believes the government will move quickly to provide financial guarantees to compensate for any damage the companies might incur from changes to the gas agreement.
“I believe the court in effect gave the government a strong hint how it can put an end to this saga,” he said.
But at least one analyst was skeptical, saying Leviathan’s partners had no interest in developing the field right now under any circumstances. “Developing Leviathan will not increase their revenues, but will certainly saddle them with major development costs,” said Oz Levy, an analyst at Apex Capital Markets. “With or without the High Court, the Leviathan reserve won’t be developed in the foreseeable future.”
With reporting by Reuters.