"An agreement with the gas companies is no longer an agreed order. Israel can't rescind it this time," Global Energy & Infrastructure Practice co-chairman Adv. Kenneth Minesinger, a legal advisor of the Alaska state government in its negotiations with the oil and gas companies, declares. "Israel must plan well before it formulates a final deal with the companies."
Minesinger, a partner in the Greenberg Traurig law firm, one of the world's largest, which has an office in Tel Aviv, was in Israel to attend an Israel Bar Association conference in Eilat. Minesinger made his remarks at a time of paralysis in the Israeli gas industry, following the announcement by Antitrust Authority director general Prof. David Gilo (who resigned Monday) last December that he was repudiating the agreed order he had reached with the gas companies.
"I've been advising the Alaskan government how to negotiate with the gas companies for decades," Minesinger says. "Like in Israel, two major reservoirs were discovered in Alaska: Prudhoe Bay and Point Thomson. The population there is small, and the gas industry is controlled by three companies (two companies are in control in Israel: Delek Group Ltd. (TASE: DLEKG) and Noble Energy, H.C.)." Both Alaska and Israel are now trying to find out how to negotiate with the gas companies in a way that will safeguard the interests of the state and its residents, together with the gas companies' interests.
"I think that it's necessary to act quickly in order to ensure development of the Leviathan reservoir, but hasty action motivated by panic isn't the right way. What's involved is an agreement that will ensure Israel hundreds of billions of shekels in revenue over the years, and serious consideration and the necessary time must therefore be devoted to this matter. In contrast to Alaska, the development project for the Leviathan reservoir is simple, but it is still difficult for an inexperienced country like Israel."
"Globes": What should Israel think about before reaching a binding agreement with the companies?
Minesinger: "There are many things to think about before reaching understandings with the gas companies, and they have to be thought about for the long term. That's why gas contracts are very complicated. For example, take the specific subject of the gas pipeline. Israel has to make sure that the gas pipeline built by the companies at Leviathan will have the right diameter for supplying the demand for gas 10 and 20 years from now.
"Israel also has to make sure that other gas reservoirs discovered in the future can be connected to the gas pipeline that will be built now. Obviously, it's in the interest of the gas companies to build a pipeline with a smaller diameter that will not facilitate the connection to it of other reservoirs. That's only one example, but there are dozens of things that the state has to take care of, and it has to do it now."
One of the main reasons for the rise in gas prices in Israel in recent years is the linkage mechanism.
"The linkage is definitely a topic to which the cabinet must give thorough consideration. There's a country in Africa that signed a contract 20 years ago that it regrets to this day. The gas sector was new for it, just like it's new for Israel now, and it agreed to link the price of gas to the Henry Hub (the Henry Hub is the largest centralized point for natural gas spot and futures trading in the US, H.C.). It turned out that when the contract was signed, the price of bas was $7-8 per mmbtu, but the US shale oil industry has pushed the price down to $3 per mmbtu. The country lost a lot of money, but there wasn't any way out, because it signed an agreement."
Many people in Israel feel that the gas companies are getting rich at their expense, and that they aren't getting their share of the profits. What are Alaskans getting out of the gas industry?
"There are a variety of ways of ensuring that the residents feel they're profiting from the gas. In Alaska, for example, the residents get cash money from the companies' gas revenues each year. It can be $500, but it can also be a lot more (every resident of Alaska received $1,884 in 2014, H.C.)."
Some people in Israel say that the country should set up a government gas company.
"I agree that setting up a government gas company is another way of allowing the residents to see their share of the profits, and that's something that Alaska is carefully considering right now. A government gas company will employ more Israeli workers, be more committed to development of the local industry, and may also enable residents to buy more shares in it. What is true, as I said, is that this is the time to think about these things."
Published by Globes [online], Israel business news - www.globes-online.com - on May 27, 2015
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