Netanyahu Pressing Hard for Natural Gas Compromise

Gives officials a month to negotiate with Nobel Energy and Delek over prices and the structure of the industry.

Offshore Leviathan natural gas drilling site.
Albatross

Prime Minister Benjamin Netanyahu has given government officials a month to present the cabinet with a compromise formula with the natural gas companies over the structure of the industry and prices, sources told TheMarker on Sunday.

The process of completing a proposal has been delayed by disputes inside the government. Now, though, Netanyahu has authorized Eugene Kandel, his chief economic adviser, to negotiate with the gas companies – Israel’s Delek Group and Noble Energy of the United States.

Outgoing Antitrust Commissioner David Gilo opposes backing down from his demands to break up the gas cartel. Treasury officials have been seeking to gain more control over gas pricing, including price ceilings and retroactively reversing terms in contracts already signed by the energy companies with their customers.

“The Prime Minister’s Office is applying pressure to tie things up quickly – the boss’ thinking is clear,” said one government source.

Kandel and his deputy, Morris Dorfman, favor a moderate price cap on gas and oppose any efforts to change the terms of contracts already negotiated and signed. The Infrastructure Ministry and its head, Yuval Steinitz, back Kandel.

The government and the two energy companies have been locked in a struggle over the future of the industry after Gilo shocked the industry last December and rescinded an earlier ruling, which allowed the firms to control Tamar and Leviathan (the two gas fields that account for the lion’s share of Israel’s reserves).

Netanyahu and many officials are concerned that Gilo’s demands will critically delay production of the as-yet-undeveloped Leviathan field.

Noble and Delek own 85% of Leviathan, which has an estimated 622 billion cubic meters (22 trillion cubic feet) of reserves. Production was slated to begin in 2018, but Noble suspended development of the $6.5 billion undertaking until regulatory issues are cleared up.

Netanyahu told the cabinet on Sunday that an agreement on the gas industry is in the pipeline, and it would balance the needs of the energy companies and regulators while ensuring fair prices.

“The outline we will submit guarantees a competitive price and prevents the possibility of price-gouging,” the prime minister said, at the opening of the weekly cabinet meeting.

“The private companies need to know we will not compromise on the rights due to the government from its gas resources,” he added. “Every delay in making a decision endangers our ability to benefit from this natural treasure, and I am determined to advance a practical solution.”

Weeks ago, Netanyahu promised the energy companies he would have a compromise plan ready by the end of July. A critical step in meeting the deadline comes on Wednesday, when the diplomatic-security cabinet meets to discuss ways of using national security considerations to circumvent Gilo’s antitrust powers.

Steinitz said he supported that move. “We are already two years behind in developing Leviathan,” he warned. “The fastest and best way to end monopolies is to ensure the development of new reserves and encourage more drilling.

“Right now, there are no international companies looking for gas and oil in Israel’s waters,” he continued. “This is a serious situation we need to change, by ensuring regulatory predictability and conditions that enable continued exploration of gas and oil.”

Gilo said last month he would step down in August, to protest the government’s opposition to his plan to introduce more competition into the gas sector. Economy Minister Arye Dery, who has the power to override the antitrust commissioner’s rulings and will therefore play a key role, has not yet made his views known.

As part of the emerging agreement, the government will hold a public hearing, including matters like a supervisor for the energy companies, gas pricing, export ceilings, and taxes on exported gas. After public comments have been recorded and potential changes made to the formula, it will go to the cabinet for approval.

Even with public input, any decision may also face a petition from social activists to the High Court of Justice. “We must make decisions even in the face of a populist onslaught – this does not faze me,” Netanyahu said.