Why Netanyahu's Natural Gas Deal Makes Sense

The pending deal isn’t perfect, but it’s better than leaving the gas deep in the ground – which is what would happen otherwise.

Nehemia Shtrasler
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Tamar
The Tamar gas field in the Mediterranea Sea, off Israel's coast. Credit: Albatross Aerial Perspective
Nehemia Shtrasler

Yes, I know it’s not popular to write in favor of the natural gas framework deal. I even understand that in order to receive applause, I need to disgrace business tycoon Yitzhak Tshuva, claim that Prime Minister Benjamin Netanyahu is corrupt, distort figures and write that the two have conspired to steal our gas. But maybe, nevertheless, the truth is also still an option?

So many lies have been told about the gas issue that your head starts to spin. “The government surrendered the whole way,” say the social activists – and that is a lie. The government doubled the tax rates on the natural gas companies [Tshuva’s Delek Group and U.S. company Noble Energy], retroactively, after they had already found gas in the Mediterranean – and that is an unprecedented act in terms of its breadth. The government limited the companies’ exports to 40 percent of the gas, a step that has never been taken in any other Western country. Now it is setting a maximum price for them and forcing them to break up their gas monopoly. And this is surrender?

“The framework perpetuates the monopoly,” claim those same socially aware people – and that is a lie, too. The framework dismantles the monopoly – not perfectly, but it dismantles it. After carrying out the framework deal, there will be competition – not full competition, not sophisticated, but competition. There will be three players competing among themselves, and then the price will fall, and the service will improve.

The social activists claim that the price of gas needs to be $3 per thermal unit and not $5.40, because “that is the world price.” Another lie. There is no world price for natural gas. There is only a local price, which depends on the production costs and local supply and demand. There are an endless number of prices around the world for gas, and the Israeli price is average and reasonable. Prof. Eytan Sheshinski [who chaired a commission examining the natural resources issue] says so, too.

These socially aware folk forget to say, for some reason, that the Sheshinski Law requires that if Delek and Noble Energy export gas at a price less than $5.40, they will be forced to lower the price for gas sold in Israel. This is an important point, since the alternative price (for export) is the correct local price. This is a much wiser policy than price supervision, which in the end works in favor of the producer and not the consumer.

The social activists claim the cost of producing a thermal unit of gas is 50 cents, and that is why $5.40 is robbery. This is another lie. They are talking about just the variable costs and are completely ignoring the enormous sums, costing billions of dollars, that have been invested in the Tamar offshore gas field – investments that have still not been paid back. They also ignore the risk-return issue. After all, oil and gas exploration is the riskiest investment there is, and the size of the risk determines the size of the return.

It is, of course, possible to set an arbitrary price of $3 per thermal unit, but then the gas will remain deep in the ground. And if Tshuva nevertheless does extract it, after years of legal battles, the end result will be that no other multinational corporation will look for gas in Israel, and all the gas treasures yet to be discovered will remain under the waves forever.

These social activists want to nationalize the gas industry, too, since “the gas belongs to us.” That is exactly what their favorite person, the late socialist revolutionary Hugo Chávez, did in Venezuela. He nationalized the entire oil exploration industry, and in doing so sent all the multinational energy companies fleeing, destroyed the oil and gas industry, and turned a rich country that exported oil into a poverty-stricken nation of shortages, crime and violence.

This is what happened in Egypt, too, which implemented price supervision on natural gas (also proposed by Yair Lapid, who learned nothing from his short spell as finance minister). The price controls led to the elimination of the oil and gas exploration industry, so much so that Egypt is now begging Israel to sell it gas.

It is true that the gas framework is not perfect. There is no such thing. But it is an agreement that is the best in the present circumstances. It will bring billions of shekels into the country’s coffers, from royalty payments and taxes. It is good for industry and good for the citizens. We must not allow the social activists turn us into Venezuela and Egypt.