A Not-So-Happy Hannukah for Israel’s Natural Gas Industry
Israel dreams of exporting billions of dollars of energy to neighbors and Europe, but the country's own regulators may prevent the country from selling much at all.
- BY KEITH JOHNSONKeith Johnson is a senior reporter covering energy for Foreign Policy.
- KEITH.JOHNSON
- @KFJ_FP
At the beginning of December, Israel was busy trying to convince Brussels to underwrite the creation of a vast network of pipelines to bring new discoveries of Israeli natural gas to Europe. Now, after just a few weeks and an unexpected series of regulatory reversals, Israel is trying to figure out if it will be able to develop the massive natural-gas fields that lay just offshore at all — or if they’ll remain there, tantalizingly out of reach.
Earlier this week, in a surprise move, Israeli antitrust authorities essentially slammed the brakes on the country’s gas development, expressing concern that the handful of companies that are investing billions of dollars in offshore rigs and pipelines to tap the tricky gas fields are just too few. That creates, they say, the specter of a commercial cartel that would have a permanent stranglehold on Israel’s energy future.
In the middle of an election, pocketbook issues like domestic energy prices often come to the fore. And the decision might help protect Israeli consumers, if other companies rushed in to fill the void and start drilling the gas fields on their own, providing more competition for Israel’s energy sector and offering insurance against pricey domestic fuel.
But as it is, with plunging energy prices, a volatile geopolitical environment in the Eastern Mediterranean, terrorism, the never-ending complications from the Israeli-Palestinian conflict, and uncertain export routes for the Israeli gas, global energy players are hardly falling over themselves to take a rider on big investments there. As a result, the anti-trust decision could translate into a significant delay, if not a derailment, of Israel’s plans to become the newest regional energy power broker.
A pair of big companies, Noble Energy of the United States and Delek Energy of Israel, are spearheading the development of the country’s two biggest finds, Tamar and Leviathan. That latter field, in particular, is the linchpin of Israel’s hopes to have plentiful gas at home and enough to earn billions shipping it to neighbors. Tamar, with about 11 trillion cubic feet, can meet Israel’s own needs for decades and provide gas feedstock for Egypt. Leviathan, twice as large, could fuel a regional export business: A recent deal with Jordan, for example, could be worth as much as $15 billion if it secures approval from both governments.
Together, the consortium controls about 90 percent of Israeli gas. In order to assuage competition concerns, the consortium had agreed earlier this year to unload ownership in a pair of smaller gas fields, with the understanding that would be enough to win a regulatory green light for continued work on the big fields.
But Israel competition officials got spooked. On Tuesday, they said that such concentration would essentially create an illegal cartel. The proposed remedy will likely be presented early next year, but would probably include a demand to hive off Leviathan and sell it to a different consortium, pushing back development of that field for years at the very least.
Leviathan was originally supposed to begin operation in 2015, but that was later delayed until 2018 because of regulatory setbacks. The latest zigzag could push the field’s development into the next decade — if investors are found at all.
The antitrust move enraged some top Israeli government officials. Orna Hozman-Bechor, the director general of the Ministry of National Infrastructure, Energy, and Water, warned regulators Wednesday that further delays to Leviathan “will result in dramatic and extremely serious damage to the Israeli energy sector,” according to a letter seen by theJerusalem Post.
The energy companies themselves were also furious, criticizing what they see as a capricious environment hostile to the kinds of big-dollar, long-term investment needed to bring energy resources online. Israeli gas development has already been plagued by agonizing debates over how much gas can be exported, and at what price it can be sold domestically.
Noble’s chairman, Charles Davidson, called the about face “another disturbing example of the uncertain regulatory environment in Israel,” adding that it sets a “harmful precedent.” Noble officials said that further investment is now on hold until the regulatory mess is resolved.
Energy expert Gal Luft, co-director of the Institute for the Analysis of Global Security, likens Israel to other energy-rich but investor-unfriendly countries. “Israel’s latest decision is tantamount to nationalization of the kind seen in Argentina, Venezuela, Mexico and Russia,” he wrote this week.
The ripple effects of the move could have impacts for Israel at home, among its next-door neighbors, and potentially even more broadly.
Thanks to the development of the Tamar field, the country secured a measure of energy independence it has long lacked; but exploiting Leviathan, which holds twice as much gas as Tamar, is key to both ensuring long-term supplies of affordable natural gas for Israeli homes and businesses and having enough additional gas to sell to neighbors such as Jordan and Egypt.
Indeed, this summer, Noble reached a deal with Jordan to sell gas from Leviathan to the Arab country. The move, backed by U.S. diplomats, was seen as a way to both further cement friendly ties between Israel and Jordan and give Amman some breathing room during its own economic and political struggles. That $15 billion accord had already been under fire from some Jordanian politicians, leery of relying on Israel for energy imports, but now could be on hold for years–if not indefinitely.
More broadly, Israeli hopes to become an alternative source of energy supplies for Europe at a time when Brussels is scrambling to find suppliers other than Russia look even more fanciful. Sending Israeli gas across the deep Mediterranean to Greece and on into the rest of Europe was always going to be a difficult and expensive energy option for Europe, but hiccups in the development of the gas field needed to feed it could be a death knell for such plans.
SEDRAK MKRTCHYAN/Flickr
Link to source: http://foreignpolicy.com/2014/12/26/a-not-so-happy-hannukah-for-israels-natural-gas-industry-leviathan-noble/
