Leviathan needs a market more than stability

Amiram Barkat

When it invested in Tamar, Noble Energy was not concerned about stability because it knew Israel was desperate for gas.

Opponents of the natural gas plan were not ashamed to shed a tear of joy in response to the High Court of Justice (HCJ). Just what were they celebrating? The HCJ approved the gas plan, subject to the elimination of one clause. From all the overwrought campaign waged here to save democracy from the gas bandits, the cries about treasonous politicians and selling the country to the tycoons and arguments about questionable approval procedures, fabricated security considerations, bypassing the Antitrust Authority director general, dismissal of regulators, and dark deals, nothing whatsoever remains.

The HCJ justices agreed that all that remained was a demand for elimination of the stability clause. This extraordinary clause was inserted at the insistence of Noble Energy, which can also concede it tomorrow morning. Furthermore, Prime Minister Benjamin Netanyahu is only an inch away from getting the plan approved in Knesset legislation, so what are all the celebrations for? In the end, Israel was and remains dependent on foreign companies to develop its gas reservoirs. In the end, the government will have to compromise with these companies, because otherwise, the gas will remain under the sea. Noble Energy, or any other company in its place, will demand a risk premium from the state in return for the capital it is jeopardizing by developing the gas reservoirs in the regulation-struck local market and the gas-saturated global market. Any postponement or regulatory twist will only make the risk premium larger. In the end, when the government has to pay, the opponents of the plan can once again accuse Netanyahu of caving in to the tycoons - after all, they bear no responsibility for the results of the crisis that will occur in the energy sector. The demagoguery can continue for another year, thanks to the HCJ.

Like the joy and euphoria of the gas plan opponents, the only real reason for the outraged responses and defiance of Netanyahu, Ministry of National Infrastructure, Energy and Water Resources Yuval Steinitz, and Minister of Justice Ayelet Shaked is political. Netanyahu and his ministers are thoroughly fed up with the unending and thankless task of getting the gas plan through the obstacles, and the thought of going back to the drawing board, or, Heaven forbid, the Knesset, gives them serious indigestion. If they are forced to consider the matter fairly, however, they will have to admit that the HCJ's ruling was expected. Even before the first HCJ hearing, the state realized that at least two justices were hostile to its position, so the chances of getting the plan through unscathed were close to nil.

The ministers were well aware how much of a precedent the stability clause would set, and they nevertheless insisted on adding it to the plan. They could have at least boasted that the rest of the plan was approved, but Netanyahu and his ministers prefer to act as if the HCJ had thrown them into the Tiber. Steinitz went so far as to accuse the HCJ of undemocratic behavior. I wonder what Steinitz would have said about the stability clause when, as Minister of Finance, he was on the side opposed to Noble Energy and Delek Group Ltd. (TASE: DLEKG) controlling shareholder Yitzhak Tshuva. He probably would have objected to the dangerous precedent, and would have asked how a private company could be given the right to prevent Knesset legislative processes - he would have moaned about the end of democracy. Someone should remind Steinitz how the demand for stability for which he is fighting so desperately originated - in the changing of the rules of the game in the middle of the game. Steinitz is the one who did that.

The real problem - no market for Leviathan

The developers' response to approval of the gas plan highlights the differences between them. As always, Delek is searching for a creative solution to the new crisis that has arisen. In the past, Noble Energy's Israeli partner demonstrated impressive ability to persuade the US company not to walk away from the deal, and to return to the negotiating table with the Israeli officials whom Noble Energy regards as insufferable. I predict that Delek will repeat its feat. After all, it would be ironic if the gas plan is not carried out merely because of Noble Energy's obstinacy. Meanwhile, however, Noble Energy is sticking to its guns and saying the government is responsible for finding a solution that will allow development of the Leviathan reservoir. Noble Energy says it is determined to fight the good fight for its rights here and now.

Noble Energy is a company with self-respect. It came here to work. It is the largest investor in the Israeli economy, and it is not here to make a quick killing and get out; it wants to develop an important industry out of nothing in order to make as big a profit as possible. While all the other oil and gas exploration companies that looked here failed, Noble Energy brought Israel five reservoirs with commercial quantities of gas. It hooked the Tamar reservoir up to the economy four and a half years after it was discovered, a real achievement by international standards. For the sake of presenting a balanced picture, it is important to note that Noble Energy is also making money, especially now that the flow of revenue from Tamar has become the company's main anchor of stability. Noble Energy was disabused a long time ago of any expectations of a thank you for doing business in Israel. Their portrayal as wicked and predatory has cut them to the quick. Noble Energy intends to fight fearlessly to protect its right to work here free of interference, even if this involves making veiled threats to file for international arbitration. As Noble Energy sees it, the threat of arbitration is essential, because Israel is an immature partner and unready for a relationship, to use a metaphor from male-female relations. The Israeli administration is unpredictable, speaks with forked tongue, and postpones decisions endlessly, only to reverse them later. The Prime Minister is friendly, but unable to deliver the goods, and has trouble enforcing his will on recalcitrant officials. Yesterday, Noble Energy's demand for stability blew up in its face, when the HCJ told the whole world, "Stability you won't get here."

It can still be assumed that stability is not everything. Such clauses are not the usual practice in other place where Nobel Energy operates, and Noble Energy was given limited and short-term stability instead of the clause it wanted. When it invested in the Tamar reservoir, Noble Energy was not concerned about stability, and did not even wait for the signing of gas sale agreements - because it knew that the Israeli economy was desperate for every bit of gas, and the reservoir had a guaranteed market. The big problem with Leviathan is not stability, but the fact that as of now, there are no buyers for the gas from it. Instead of bothering about stability clauses, the state should therefore ensure a market for Leviathan.

Published by Globes [online], Israel business news - www.globes-online.com - on March 29, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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