Is it a honey pot or a honey trap? This is the tough question confronting the Leviathan gas field owners (Noble Energy Inc. (NYSE: NBL), Delek Group Ltd. (TASE: DLEKG) and Ratio Oil Exploration (1992) LP (TASE:RATI.L)) in their talks with international energy majors headed by Russia's Gazprom JSC (RTS: GAZP; LSE: GAZD; DAX: GAZ) to become partners in the drilling. This is also a crucial question for Israel's energy security in the coming decades.
On the assumption that the future of the Leviathan field depends on the major capital of an international energy giant, the State of Israel has reached a fateful moment. Either it offloads the future of its natural gas or becomes involved in an ownership capacity. It would be appropriate for the top decision makers - Prime Minister Benjamin Netanyahu, Minister of Finance Yuval Steinitz and Minister of Energy and Water Resources Uzi Landau to immediately get into the picture along with Governor of the Bank of Israel Stanley Fischer, to consider how to finance the great natural gas revolution.
Bringing in a huge gas giant like Gazprom to Leviathan can become a bear hug from which it will not be possible to break loose. Several days ago it was announced that the European Commission is investigating Gazprom's conduct due to suspicion of antitrust behavior - in other words whether it has been unfairly exploiting its dominant status in Europe in gas exports and harming the free flow of gas to the EU.
For some years now Gazprom has tried to block every alternative for European gas imports. To this aim it built the northern pipeline that enters directly into Germany and is planning the southern pipeline that if built will block the project to build a pipeline from the Caspian Sea to Europe via Turkey.
Blocking Europe from all directions is probably the main reason that Gazprom wants a part of Leviathan, so that it can ensure its passage to the pipeline to Southern Europe. What will that do for Leviathan? And what will that do for the security of the vital flow of natural gas to Israel and the massive needs of Israeli industry?
Would it be possible to develop Leviathan without huge partners? It seems not. It's too big even for Noble and Delek controlling shareholder Yitzhak Tshuva. Would it be right for the State of Israel's energy future to be dependent on the vagaries and interests of foreigners? It also seems not. Therefore, either the government should be a partner in the drilling or should commit in advance to buy all the natural gas and distribute it itself.
A third possibility would be to listen to Yossi Ram, a veteran entrepreneur in the area of natural gas who does not operate in Israel and has no (to his regret) connection to the key fields at Tamar and Leviathan. He told "Globes" today, "There is no doubt that the highest value for the gas is in the Israeli market. No export project would leave the value that they will get from Israelin the hands of the entrepreneurs. However, the market is limited in size on the one hand, while on the other hand all attempts to increase gas consumption in Israel in a massive transition for use in transport and industry would be stopped by the regulators headed by the Ministry of Finance."
He continued, "Those who say that the government must retain protected large reserves are far more right than is suggested in the Tzemach Report. But the gas field owners are also right when they talk about financing difficulties. So there is one solution to the situation. The Bank of Israel should acquire the field. The State of Israel has traditionally held large foreign currency reserves. So what is to prevent it from holding some of the gas fields as a product rather than cash, while the product cannot be used, and it is possible to keep it reasonably stored as a gas field.
He added, "Capitalizing the alternative value of the Leviathan field requires a reasonable and logical investment in proportion to the amount of reserves held by the Bank of Israel. If the Bank of Israel invests $5 billion it would ensure the future energy reserves of the State of Israel for many decades to come. And that would be the best economic deal that the Bank of Israel could currently do."
Published by Globes [online], Israel business news - www.globes-online.com - on September 9, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012