Antitrust proposal calls for gas price ceiling

Tamar

The compromise calls for lower gas prices, Delek to sell Tamar, and Noble Energy to sell part of its Tamar holdings.

The price of natural gas in Israel will be limited according to the type of consumer in the government's proposed compromise to the gas developers. A ceiling price will be in effect for a period of five years. Existing contracts such as the agreement with Israel Electric Corporation (IEC) (TASE: ELEC.B22) will not be renegotiated. The ceiling price will be considerably lower than the current prices in agreements for the Tamar field with its main gas consumers. In addition, as already published, the State is demanding that Delek Group Ltd. (TASE: DLEKG) sell all of its holdings in Tamar as well as Tanin and Karish, and that Noble Energy Inc. (NYSE: NBL) should dilute its holdings in Tamar, and sell its holdings in Tamar and Karish.

The members of the inter-ministerial committee included representatives of the Ministry of Finance, National Council for Economics, the Ministry of National Infrastructures, Energy and Water Resources, and the Israel Antitrust Authority last night presented the principles of their proposals to Yitzhak Tshuva's Delek and US company Noble Energy. The proposed structure for the natural gas industry is meant to ensure natural gas supply to Israeli consumers, encourage competition in the natural gas market, create regulatory certainty, and encourage gas exploration operations. The proposal, termed a draft, includes solutions for all the issues that are still open regarding the relations between the State and the developers about additional licenses, taxation, and storage at Yam Tethys. The final proposal will be subject to cabinet approval.

according to the proposal, the government will not supervise prices above the present level, providing the developers agree to restrict prices for the next five years according to the following scale: private electricity producers will receive a lower price of less than $5 per thermal unit, industrial electricity producers (generator lines), industrial enterprises and marketers to the distribution grid will pay between $5 and $5.25 per thermal unit. IEC is currently paying $5.75 per thermal unit for Tamar gas and small gas consumers are paying between $6 and $7.

When the Tamar gas agreement was approved, IEC demanded putting in a condition prohibiting Tamar from selling gas at a lower price than it was receiving but this condition was nixed by the Israel Antitrust Authority. The gas price will be linked to an index of energy prices agreed upon in talks between the gas developers and the State - the index will include prices of alternative energy and oil as well as gas and the Consumer Price Index.

While Delek will be required to sell its entire holding in Tamar, Noble Energy will only have to sell part of its holding in the field and will remain its operator. Noble's dilution in rights in Tamar must be completed within four years. The aim is to create competition between five players controlling three fields: Tamar; Karish and Tanin; and Leviathan. Selling gas from Leviathan and Tamar will be separated with each partner acting separately immediately. Tamar Southwest will be considered part of the main Tamare field.

Delek and Noble will also be required to sell their holdings in Karish and Tanin (the Alon A and C licenses) within 12 months. Delek and Noble's export quotas I these fields will be transferred to their export quotas in Leviathan, allowing them to increase gas exports from this main field - but only after Tanin and Karis are developed and connected to the mainland. The buyer of these two fields will also be granted the license to explore the Alon B area and if gas is discovered will be entitled to excport part of the gas according to the government's export policy.

Published by Globes [online], Israel business news - www.globes-online.com - on February 19, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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