Government Must Work to Improve Natural Gas Deal for Israel

Restructuring Israel's natural gas market had three goals: Increasing gas supply,reducing prices and opening the market while restraining the gas monopoly – it has failed by on all three counts.

Off Haifa coast, oil rig at enormous Leviathan natural gas field.
Albatross

About six months ago, the government set out to change the shape of the Israel's natural gas market in order to achieve three main goals: Increasing the supply of gas and gas reserves by developing additional gas fields and upgrading infrastructure; reducing the price of gas so that the public could benefit from these welcome discoveries through a lower cost of living; and opening the gas market to competition while restraining the dangerous economic and political power of the gas monopoly, a partnership between Delek and Noble Energy.

These three goals weren’t meant only to serve the Israeli public. Indirectly, their achievement was also important to the gas companies, because Delek and Noble Energy are also interested in continuing to develop the areas covered by their drilling licenses. And they, too, know that without proper enforcement against their monopoly and regulation of their commercial activity, they will remain under the shadow of public protests that will prevent the long-term regulatory stability they need.

Nevertheless, the outcome of the discussions the government held with the gas companies was that the more the talks progressed, the farther the government moved from its original goals. The draft deal that the government presented last week doesn’t ensure development of the Leviathan gas field within the time frame necessary to meet Israel’s economic needs. The deal contains no guarantees that the field’s developers will abide by this timetable, yet it gives up various means of leverage that the government could have used to enforce this deadline. Nor does it contain any mechanisms that would encourage the companies to start developing Leviathan quickly.

Moreover, the deal doesn’t guarantee a competitive price for the gas that will be sold in Israel, which already pays relatively high prices for its gas. This omission is especially noteworthy in light of the steep drop in global energy prices. The deal even ensures a steady rise in the price of gas by relying on the draconian, inflated linkage mechanisms included in contracts signed with the Tamar field, which look especially high in light of the near-zero interest rates worldwide. Finally, the deal doesn’t break up the gas monopoly, but merely pretends to reduce its scope in another six years, and even then, only for a limited time period.

The government boasts that the deal it reached has strategic and geopolitical importance, since it ensures gas exports from Israel to its neighbors. But this achievement – which is based on permitting exports from Tamar, the field that’s already online, even before Leviathan is hooked up to Israel’s coastline – is liable to be dwarfed by the risk to Israel’s own energy security, which now depends on a single pipeline from a single gas field.

The government admits that the deal it reached with the gas companies isn’t optimal, but claims it was the best deal achievable. Nevertheless, when the government is determining economic, social and political conditions that will prevail for decades, and even enhancing these terms by granting them unprecedented regulatory immunity, we must insist that it make an additional effort to produce a better result for the public it represents.