Natural Gas Framework Wins Knesset Backing, but Antitrust Issues Still Remain

Pressure resumes on Economy Minster Arye Dery to act, but stock market investors remain doubtful and sell down energy shares.

Zvi Zrahiya
Zvi Zrahiya
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Netanyahu speaks to Dery in the Knesset, Jerusalem, May 13, 2015.
Netanyahu speaks to Dery in the Knesset, Jerusalem, May 13, 2015.Credit: Reuters
Zvi Zrahiya
Zvi Zrahiya

Prime Minister Benjamin Netanyahu is determined to overcome the last remaining obstacles to enacting the natural gas framework agreement, after winning Knesset approval for the plan on Monday by a majority of eight (59-51).

The nonbinding vote was a major political and parliamentary victory for the prime minister, who has fought stiff opposition from his own antitrust regulator as well as the media, social activists and lawmakers. The result looked in doubt even in the hours before the vote, and the government was forced to withdraw related legislation that would have solved the antitrust issues still blocking implementation of the framework.

The government still needs to find a way to overcome the opposition of former antitrust commissioner David Gilo, whose decision remains in force until a successor is named or Economy Minister Arye Dery overrides it.

After the vote, Netanyahu expressed determination to move forward. “There’s one more obstacle we have to remove, and it will be removed. There will be natural gas for Israel,” he told reporters.

Dery’s Shas party voted in favor of the framework, but Dery himself signaled that he wasn’t going to use the powers he has under Section 52 of the Antitrust Law to override Gilo’s 2014 decision.

“It isn’t appropriate that a single minister will alone set a precedent, so I’ve asked that the government decide together. It shouldn’t take long to be able to assemble a majority to get authority,” Dery said after the Knesset vote.

Drilling platform of the Leviathan natural gas field.Credit: Albatross

The natural gas framework would set terms for the gas cartel that controls the lion’s share of Israeli reserves, and allow the companies to move forward with developing the giant offshore Leviathan field.

Among other things, the framework would allow the biggest companies – Delek Group and Texas-based Noble Energy – to retain control of Leviathan, while forcing Delek to sell Tamar and Noble to reduce its stake. It would also grant the cartel protection from any kind of regulatory changes for at least a decade.

Netanyahu, who has led the drive to get the framework approved, said he was confident the antitrust problem could be resolved.

“When I want something, I get it. They said at the beginning, ‘We haven’t seen the framework,’ so we made the framework public. They said, 'You need to improve it,' so we improved it. They said, 'Bring it to the cabinet [for a vote],' so we brought it and it was approved. They said, 'Bring it to the Knesset,' and we approved it by a majority,” the prime minister said.

“Right now, we have one more obstacle – and we will overcome it, because it’s the right thing for the citizens of Israel,” Netanyahu said, adding that despite Dery’s zigzagging, he continued to look on him as a “partner.”

But investors remained skeptical. Oil and gas shares dropped sharply on the Tel Aviv Stock Exchange on Monday, even after the Knesset vote. Avner ended down 2.3% at 2.45 shekels (62 cents), Delek Drilling was off 2.4% at 12.76, Isramco off 1.7% at 71 agorot and Ratio down 1% at 29 agorot.

Netanyahu has several options to deal with the antitrust problem. The first, apparently preferred, option is to pressure Dery to override the antitrust commissioner. Dery previously said he would do so after consulting with the Knesset Finance Committee if the Knesset approved the framework.

Another option is to transfer Dery’s authority on the gas cartel to the full cabinet. After the government failed Monday, for a second time, to amass a parliamentary majority for such a move, officials in the Prime Minister’s Office are examining a legal process that would temporarily strip the minister of his powers without the need for Knesset approval.

At a meeting of coalition party heads last week, Dery offered to either step down or let himself be fired. But Netanyahu rejected the idea, out of concern for coalition stability.

The battle of the gas framework pits critics concerned that the cartel will exploit its monopoly power to raise prices against Netanyahu and Energy Minister Yuval Steinitz, who are anxious to get the Leviathan field into production as quickly as possible.

At 22 trillion cubic feet, Leviathan had been slated to begin production in 2018, with most of the gas earmarked for exports to Israel’s neighbors – a development Netanyahu and others see as strategically important for Israel.

But development has been delayed by the framework controversy, and the export angle has been clouded by a recent announcement that the Italian energy group Eni had found 30 TCF of natural gas in the Zohr field off Egypt. Noble expressed optimism that the Eni find didn’t fundamentally alter the question.

“After final approval, we can complete the required export contracts, rebuild the work teams ... and raise the external financing needed,” it said in a statement after the vote, which observers said could prevent the company from seeking international arbitration.

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