Comptroller says government fumbled natural gas deal

Days before the Knesset is to vote on a measure that could cement a de facto monopoly over Israel’s offshore gas fields, the state comptroller on Monday slammed the government’s handling of the lucrative resource.

In a report, the comptroller’s office said that a deal hammered out between the government and gas companies that have won the right to develop offshore fields establishes an absence of competition and regulation in the natural gas market, delaying the development of Israel’s recently discovered offshore reserves.

“This audit indicates that the government’s conduct on natural gas production was poor and incohesive, and contributed to the creation of a monopoly in that market,” the report said.

In a press release announcing the findings of the audit, the comptroller’s office cited the government on four central points: the de facto monopoly; the fact that until other reserves are developed, the gas supply is coming only from the Tamar gas reserve; the fact that “there is only one working pipeline with a limited output”; and the dearth of storage facilities for the natural gas, creating a future situation in which “Israel will have no backup supply of natural gas.”

The report noted that the ongoing controversy surrounding the natural gas reserves was delaying the development of the resource and hindering the implementation of a program that could transform the Israeli economy.

“The findings point to an overall lack of government policy, slow and ineffective action and only partial regulation in a number of areas,” the report said.

The comptroller’s findings generally reflect objections by critics who say that the partnership between the American gas company Noble Energy and the Israeli Delek Group will drive up gas prices and damage the economy, and that a lack of governmental transparency is detrimental to consumers.

The report called on the government to implement a mechanism that would coordinate regulation with the private sector.

The July 22 parliamentary vote seeks to exempt the multi-billion-dollar deal between the government, on one side, and Noble and Delek, on the other, from antitrust laws, despite the partnership being branded a de facto monopoly by the head of Israel’s Antitrust Authority last year.

The emerging government-backed deal faced increasingly vociferous opposition in recent months, prompting State Comptroller Yosef Shapira to announce last month that his office would investigate the deal and release its findings ahead of the Knesset vote.

In June, Shapira asked Energy Minister Yuval Steinitz to delay a Knesset vote on the natural gas deal scheduled for last month and endorsed by Prime Minister Benjamin Netanyahu until after his office had published the report on the government’s handling of the lucrative resource.

But the parliamentary vote was postponed anyhow after Netanyahu failed to cobble together a Knesset majority to pass the measure, which would grant Netanyahu’s cabinet the authority to rule on the agreement.

Critics of the deal, which awards Noble Energy and the Delek Group access to the Tamar and Leviathan offshore reserves, say it amounts to a “robbery” of Israel’s natural resources and urge increased government transparency.

Antitrust Commissioner David Gilo, who labeled the arrangement a monopoly, announced his resignation over the matter earlier this year.

Under the terms of the deal, the two companies would retain control over the Leviathan gas field, the largest of the four, but must sell off part of their ownership in the Tamar, Tanin and Karish fields.

The deal provides the Noble-Delek group immunity from the Israeli Antitrust Authority for a period of 15 years and allowed the energy giants to keep their majority holdings in the Leviathan offshore gas reserve until 2030, even if the reserve becomes Israel’s only source of natural gas.

Noble and Delek have been selling gas to the Israeli market from the Tamar field, which went online in 2013, and have agreed to sell to neighboring countries as well. The Leviathan field, the largest in the Mediterranean, has not yet been developed.

The future forced sales are aimed at opening the industry to competitors. The deal also sets a price ceiling for future sales to Israeli companies and commits the gas firms to complete the development of the Leviathan gas field by 2019.

However, critics say the deal might in fact strengthen the gas monopoly because the companies will maintain a de facto monopoly over the Tamar field for the next six years before embarking on a similar partnership to develop the Leviathan field.

Environmentalists have also voiced opposition to the plan, saying that increased competition would encourage the industry to use more environmentally friendly resources.