No Agreement After Latest Round of Talks Between Gov’t, Gas Companies

Failure comes even though state softened terms of the outline that the two sides agreed to two months ago.

Avi Bar-Eli
Avi Bar-Eli
Offshore Leviathan natural gas drilling site.
Offshore Leviathan natural gas drilling site.Credit: Albatross
Avi Bar-Eli
Avi Bar-Eli

The latest round of talks on natural gas regulatory policy between the government and representatives of the companies developing Israel’s offshore natural gas reserves ended without agreement early Tuesday. The failure to resolve the issues, including the price at which the gas will be sold by Houston-based Noble Energy and Israel’s Delek Group, the two energy firms with monopoly control of the major offshore gas sites, came despite the fact that the government softened the terms of the outline that the two sides agreed to two months ago.

The two groups are developing the Tamar offshore site, which is already in production, as well as the much larger Leviathan site, progress on which has been stalled over the regulatory disputes with the government. Prior to the conclusion of the meeting early Tuesday, the gap between the parties was substantially narrowed. The parties agreed to compromise on the amount of gas that would be exported from the Tamar site to Egypt. Terms were also worked out, for example, that exclude arbitration sanctions with regard to the Levithan site as an incentive to get the site into production.

Along with these concessions, the government committed to maintain stability on the regulatory scene, including a declaration once all the issues are resolved that it will make no further changes in taxation policy applying to the oil and gas sector or other structural changes for the next decade. If agreement is to be reached with the gas monopoly, the government has committed to stating that it “sees no need to additional change that would appear substantial to a reasonable investor in the share that [the government would get] of the profits of the owners of the [gas] reserves.” The only exception would be across-the-board changes in the government’s fiscal policy rather than changes specifically targeting the oil and gas industry.

The one area in which the government stiffened its position in the latest talks was its retreat from a commitment to attempt to foil any legislation introduced as private members’ bills by individual Knesset members, rather than by the governing coalition, related to the sector. The backtracking on that score was the result of concern expressed by Deputy Attorney General Avi Licht that such a commitment restraining Knesset members’ legislative activity was not feasible.

Noble Energy representatives refused to accept that change. Also unresolved is a government demand involving a ceiling on the price of the gas and the matter of milestones to be met toward production at the Leviathan site by July 2019, amid concern that the deadline won’t be met and that sanctions might be imposed for slow progress.

For his part, Energy Minister Yuval Steinitz said it was actually regulatory issues that led to the failure of the current talks. It should be noted, however, that the delegation from Noble Energy, led by company senior vice president Keith Elliott, returned to the United States on Tuesday on a flight that had been reserved in advance. Steinitz said the discussions would be resumed shortly.

The government offered to give the owners of the larger Leviathan gas production site “immunity” from having to make any structural changes to the ownership arrangement at the site or require that those with the interest in the site compete in some respect in the operation of the site for 15 years, which in effort would remove any action against them by the Antitrust Commissioner.

Delek, the holding company controlled by Yitzhak Tshuva, holds 45% of Leviathan, which will be Israel’s biggest gas field when it is developed. Noble Energy has a 40% stake, with the rest owned by Ratio Oil Exploration. Delek and Noble also control the Tamar field, currently Israel’s biggest.

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