Government’s New Gas Export Limits May Prompt Lawsuit by Tamar Partners

Partners would assert that new government policy treats the partners in Tamar offshore site unfairly in comparison with way partners in other exploration sites were dealt with.

Wednesday’s announcement by Prime Minister Benjamin Netanyahu that Israel would reserve 60% of its offshore natural gas reserves for local consumption − despite a government committee recommendation that only 50% be barred from export − could prompt a legal challenge by partners in the Tamar gas exploration partnership. The claim would assert that the new government policy treats the partners in the Tamar offshore site unfairly in comparison with the way partners in other exploration sites were dealt with. Any such suit could also signal a rift between the two Tamar partners and other stakeholders at the site who have much larger investments in the giant Leviathan offshore gas site, and would therefore be less affected by policy changes affecting drilling at Tamar.

The proposed curbs will be presented to the cabinet Sunday, but according to energy sector sources, Tamar partners Isramco, which has a 29% stake in the site, and Alon Natural Gas Exploration, with a 4% stake, are already gearing up to file a petition to the High Court of Justice against an expected cabinet decision limiting exports to 40% of the gas reserves. They claim the proposed change to the recommendations made last year by the Tzemach government committee on gas exports would put them at a disadvantage compared to other exploration sites.

The decision to limit the exports to 40% over the next 20 years was taken Wednesday by Netanyahu, Bank of Israel Governor Stanley Fischer, Finance Minister Yair Lapid and Energy and Water Resources Minister Silvan Shalom, and boosts the quantity of gas to be held in Israel to 20% more than the amount stipulated in the Tzemach committee recommendations.

The cuts in export quotas that Netanyahu and his cabinet colleagues are proposing would not be imposed across the board and instead are expected to disproportionately fall on the Tamar production site. Tamar Partners Delek and Noble Energy are not expected to join any legal action because together they have an 85% stake in the much larger Leviathan offshore gas exploration.

Over the past several months, officials at the Energy and Water Resources Ministry had advocated a total ban on the export of gas from Tamar but left the ultimate decision to Netanyahu. They initially argued that financing for the development of the Tamar site has already been secured; the developers had been taken advantage of benefits provided by law; and the Tamar site should be considered a strategic reserve for domestic use. That would have left most of the production at the Leviathan site for export. In the end, ministry officials were concerned, however, that a blanket requirement that all of Tamar’s production remain in Israel would prompt litigation, so they agreed to a more nuanced approach.

Although the Tzemach committee recommended allowing 50% of the Tamar reserves to be exported − meaning 140 billion cubic meters of a total of 280 billion − the ultimate decision by Netanyahu and his three colleagues would not bar exports entirely from the Tamar site. They propose that exports come from gas for which the Tamar partnership has not signed supply contracts. The restrictions would not affect gas already committed by contract to customers.

The new proposal contains other detailed restrictions as well and in practice, if the cabinet approves this approach, it would foil the agreement in principle that Tamar reached with the Russian Gazprom energy giant for the sale of 84 billion cubic meters of gas. It may, however, allow Tamar to export to neighboring countries in the future with the approval of the prime minister and the energy minister. That may include future gas supplies to the Palestinians, for example, to fuel a planned power plant in the Jenin area of the West Bank.

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