Noble Energy Inc. (NYSE: NBL) SVP Keith Elliot arrived in Israel on Monday for a series of meetings with government officials in a final attempt to tie up loose ends in the natural gas outline saga.
Marathon meetings between Delek Group Ltd. (TASE: DLEKG) and Noble Energy representatives and the regulatory team were held on Sunday and continued the following day. No date has yet been set for a government hearing on the agreement and, despite earlier estimates which believed the discussions would end this week, it now appears that the talks will continue into next week.
At the center of the disagreement between the corporate officials and the governmental team are three issues: the price, the stability clause, and the development of the Leviathan reservoir. The government hearing will be set according to the progress in the discussions.
One of the sections which caused the most public outrage and could thus be changed before the final draft is the stability clause, according to which the state commits not to change any significant regulations governing the gas market until 2025.
The current draft says "the government will even object to private bill proposals in these matters so long as they request to make changes in the sector"; under some circumstances, the energy minister could extend the government's commitment until 2030.
The critique of the clause argues that it limits the actions of future governments. And, while it appears likely to stay in the outline, the Ministry of Justice has been working in recent days to change the language.
Other changes which will likely be inserted into the final outline were revealed by "Globes" some two weeks ago. At the end of the public hearings on the agreement, the inter-ministerial team responsible requested that the gas price for new contracts signed in the next 5 years be raised by $0.20, that a mechanism guarantee the gas price in Israel does not exceed the average cost in OECD countries, that milestones be set for the development of the Leviathan reservoir, and that the firms be required to purchase locally.
While the energy companies are willing to commit to the local purchase requirement and the price mechanism, they refuse to compromise on the price. The firms said that Egypt raised its price to $5.88 per thermal unit, while Israel is seeking to lower the price from $5.4 to $5.2 per thermal unit.
Whether or not the price is slightly lowered, sources at the Ministry of Energy claimed Monday that the price change was not the most significant hurdle; the ministry's position is that it is important the outline is approved even if it is not the ideal deal.
"Lowering the price by $0.10-20 is throwing a bone to the public," said a senior source in the energy sector, "After all, we aren't looking at new contracts and the discount if there even is one is only for a five-year period. During this time, the only deals to be signed will be with maybe one or two power plants, and maybe a few manufacturers."
The senior source added that "in 2020-2021 new contracts are expected to be opened and signed. According to estimates, the deals will be in the range of 4.5 billion cubic feet of gas. For that amount, there will be several players including Leviathan, Karish, and Tanin. The gas price will be set by future market conditions."
Published by Globes [online], Israel business news - www.globes-online.com - on August 10, 2015
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