Israel and energy exports: Much hot air about gas

Sixteen years after the first discovery of commercial-scale natural-gas reserves under the Mediterranean off Israel’s coast, the country’s transition from dependence on imports to energy exporter is proving slow, according to the

This month, the government will publish a long-overdue outline for regulation of the natural-gas industry. There will be a new framework for pricing and competition in those fields that have already been discovered and licensed, and a long-term plan for the exploration and exploitation of yet-to-befound undersea riches.

Opposition politicians and NGOs have been conducting a noisy campaign against the Israeli-American consortium that currently holds the licences to the largest gasfields, and against the sudden haste with which the new government, sworn in just a few weeks ago, has been conducting its regulatory review.

The head of the country’s competition authority, David Gilo, recently resigned after rowing with the prime minister, Benyamin Netanyahu, over how to break up the consortium’s monopoly over gas production. The finance minister, Moshe Kahlon, recused himself from any decisions on energy matters, because of his friendship with a shareholder in one of the gasfields involved.

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the massive gas reserves enjoyed by nearneighbours such as Iran or Qatar. But at a conservative estimate, there already appears to be enough recoverable gas under Israeli waters to provide all the country’s powergenerating needs for 40 years.

Under a deal being negotiated between the government and the consortium members, Delek Group of Israel and Noble Energy of the United States, the firms will sell two small gasfields quickly; then in six years Delek will sell its entire stake in Tamar, the largest field currently in production, and Noble will reduce its stake to 25%. That will leave them with Leviathan, a bigger field due to come on-stream in 2020.

In return, the government will reject calls for it to impose formal price controls on gas sold domestically. Instead it is expected to go for a looser arrangement, to ensure that at least the price of gas inside Israel is no more than the export price. A limit on exporting— no more than half of the gasfields’ output— may be eased.

Why, after years of delays, is the government in such haste to strike a deal with the Delek-Noble consortium and to draw up a new energy policy? Officials point to the imminent deal between Iran and its negotiating partners to curb Iran’s nuclear programme: once it is struck, sanctions on Iranian energy projects will be lifted and, they argue, all the investment will go there.

Like Gilo, the government’s critics think that in its rush, it is failing to bring sufficient competition to the industry.

Whatever the motives, Israel’s new energy policy should offer investors a stable and transparent regulatory regime. Even if sanctions against Iran are lifted, that country’s unreliable legal system and poor infrastructure mean that it may take years for it to start to attract foreign energy firms. In the meantime, Israel has good prospects of attracting fresh investment, if it gets its rules right. So far only a quarter of the country’s waters have been explored.

Having depended on imports of Egyptian gas until recently, Israel has now signed deals to sell its gas back to Egypt, as well as to another Arab neighbour, Jordan. Not so long ago Israel was having to go as far afield as Mexico to secure energy supplies. Now the government’s challenge is to overcome the public’s nervousness about selling any of the country’s precious reserves to outsiders.