Regulators form final gas monopoly compromise

Leviathan

The state is abandoning the requirement of separate marketing of natural gas from the Leviathan reservoir.

Three months after the state presented its compromise formula for generating competition in the natural gas sector to the partners in the Leviathan gas reservoir, it has come up with a second formula in the hope that this one will be final.

The new format makes no structural change in the Leviathan reservoir, and the partners in it, Noble Energy and Delek Group Ltd. (TASE: DLEKG), will not be required to compete with each other in selling gas from it (no separate marketing).

Instead, loose controls will be imposed on the price of gas in future contracts. The price of gas will reflect the average gas price in the current contracts from the Tamar reservoir. Delek Group will have to sell its holdings in the Tamar reservoir, and Noble Energy will have to dilute its holdings, but not to the extent required in the previous formula. Delek will also be required to sell its holdings in the Karish and Tanin reservoirs.

The regulators yesterday presented their format to Antitrust Authority director general Prof. David Gilo, but sources inform "Globes" that as of now, he is unwilling to forego his demand for separate marketing from the Leviathan reservoir. He asserts that the separate marketing model was included in the previous compromise formula, and there is no reason to forego this requirement. In any case, the regulators will have to reach agreement with Gilo by the middle of next week before presenting their compromise to the Leviathan partners.

Last December, Gilo announced that he was rescinding his agreement with the gas companies, and the gas sector in Israel has been treading water ever since. Noble Energy has fired employees and frozen all of its investments, Italian gas drilling company Edison has threatened to leave Israel if a solution to the regulatory problems is not found soon, the negotiations for exporting gas to Egypt and Jordan, which would have ensured the development of the Leviathan reservoir, are going nowhere, and the only gas export contract signed, which is with the Palestinian Authority, has apparently been canceled.

Dozens of discussions between government representatives and the gas companies have been conducted since Gilo's announcement, and in February the government presented the companies with a formula for arranging the gas sector. The main points were price controls on gas, competition between the partners in the Leviathan reservoir (separate marketing), dilution of Noble Energy and Delek Group's holdings in the Tamar reservoir, and the sale of the Karish and Tanin reservoirs.

As reported in "Globes," however, in February, a few days after the state presented its first compromise formula to Nobel Energy, it realized that some of the conditions presented were impractical, among them the separate marketing model for the Leviathan reservoir. The model is very complicated technically, and could cause problems in development of the reservoir.

The state also realized that the demand for dilution of Noble Energy's share from 36% to 10% is not essential for creating competition. The ministries assert that if Noble Energy operates the reservoir (the contractor company), the size of its stake is irrelevant.

Published by Globes [online], Israel business news - www.globes-online.com - on May 7, 2015

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

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