The best gas plan we've got

Amiram Barkat

The government's critics put forward no credible alternative.

So what do you remember from all the heated public discussion about natural gas in recent weeks? If all you could hear were the shouting, spins, and slogans, then you have the following picture in your head: Netanyahu very much wants to pass the plan for restructuring the gas sector, because that is what the US and Sheldon Adelson told him to do. The plan that Netanyahu wants to pass is nothing less than surrender by the Israeli government to the gas monopoly, which is being justified by empty threats made by the monopoly. This letter of surrender will make Israelis pay exaggerated prices for our gas, and someone is going to make a lot of money at our expense and control the government and jeopardize democracy. On the other hand, if the plan is not approved, the gas will remain in the ground, the Iranians will grab all of our potential customers, and the economy will lose tens of billions of dollars.

If you decided to go into the facts a little more deeply and tried to understand what all the noise was about, you would have discovered a much more complicated situation, which goes something like this. On the one hand, you learned that the gas is being sold to Israel Electric Corporation (IEC) (TASE: ELEC.B22) at several times its cost to the developer. The state is unwilling to cut the price of gas in half, impose price controls on gas, or invest in the gas sector by itself. Noble Energy, the company producing the gas, admits that the Tamar reservoir is exceptionally profitable. That same Noble Energy (or the gas monopoly) is due to receive approval from the state for operating Israel's two main reservoirs, only one of which is already producing gas, for 15 more years. You realized that the state did not do the best possible job of conducting negotiations with the developers, because it was operating with a deadline, and because the prime minister and his associates very much wanted the negotiations by the developers for selling gas to Egypt and Jordan to succeed. In the bottom line, you realized that the state was incapable of forcing Noble Energy to split its holdings in the Tamar and Leviathan reservoirs , and that this will probably be even more difficult in the future.

On the other hand, you realized that development of a gas reservoir is an expensive and complicated business and that Noble Energy's profits are high, but not unreasonable in comparison with the industry in which it operates. You learned that development of Leviathan, the second reservoir, is being delayed by regulation, and that not a single major international company is standing in line to enter Israel and compete with or replace Noble Energy. You realized that the government has no desire, and as of now, no ability, to manage the reservoirs by itself. You read that the price of gas is determined in an agreement approved by the regulators, and that reopening that agreement now will damage the state's credibility and drag it into difficult international arbitration. You learned that price controls can pose a problem in the long term, as shown by other countries' experience. You realized that the government believes that Israel has a geopolitical interest in gas exports by the developers to neighboring countries and a financial interest in the developers earning large profits. You heard the figure of one trillions shekels, and realized that this is the maximum amount that can be obtained from the sale of all the gas, and that 60% of this amount is scheduled due to go to the state, with the balance going to the rich people. In short, you are confused.

So whom should you support? Beyond all the cacophony and hullabaloo, each side has real arguments. Netanyahu and the government, however, have one card one strong card that their opponents do not have: they have an agreed plan they can proceed with, even if it is not the best one. Most of their critics have no alternative proposal or plan. Even the few who are making real proposals have no idea what the consequences of those plans will be. The consequences are important in such a complex sector, and the damage that will be caused on the way is liable to dwarf the benefit at the end of the road. Nevertheless, the critics have one point that should be taken into account: this gas plan was drawn up under pressure of time and other factors. It is complicated and difficult, and clauses we will regret in future years may be concealed in it. It is therefore important for the plan to be presented, and that the discussion of it should be calm and comprehensive. It is even more important to demand that it should not constitute a final, ultimate, and binding arrangement that will fetter the state for 10 years into the future. It is true that regulation here is driving the developers crazy, and that the learning process is not finished, but that is a reasonable price to demand from those entrusted with development of our gas resources.

Published by Globes [online], Israel business news - - on June 30, 2015

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

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018