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Analysis

Govt. gas export decision unlikely to satisfy everyone — or anyone

Israel will allow only 40% of its gas reserves to be shipped out, less than had been promised to companies, and more than what some Israelis are prepared to allow

Protesters hold up signs and chant slogans as they gather outside the house of businessman Yitzhak Tshuva, in Ramat Poleg, Netanya, in a May 18 protest calling for a change in the goverment's gas export policy (Photo credit: Gili Yaari/Flash 90)
Protesters hold up signs and chant slogans as they gather outside the house of businessman Yitzhak Tshuva, in Ramat Poleg, Netanya, in a May 18 protest calling for a change in the goverment's gas export policy (Photo credit: Gili Yaari/Flash 90)

With the decision by Israel’s top officials Wednesday on how much natural gas the country will be exporting in the coming years, the government is likely to get flack from all sides — at least according to the initial reactions and comments.

For those completely opposed to the export of natural gas — or too much of it — the 540 billion cubic meters of gas that will go to export (currently 40% of Israel’s projected reserves) is too much. Meanwhile, for those advocating gas exports, the amount, 13% less than the 53% of gas reserves the Tzemach Commission had recommended, is another example of the government’s flip-flopping and caving in to populist pressure.

Prime Minister Benjamin Netanyahu, along with Minister of Energy and Water Resources Silvan Shalom, and Finance Minister Yair Lapid, on Wednesday presented the government’s final decision on the thorny issue of gas exports.

“The State of Israel received a gift from nature in large quantities of natural gas. After a series of long meetings, we have jointly decided to significantly increase the amount of gas for Israel’s use. This will supply our needs for 25 years. This is a balance between the need to ensure energy sources for Israel’s citizens and the need to export gas which will generate revenue for use by Israel’s citizens,” said Netanyahu.

The 40% of gas discoveries that are exported during the 25-year period (assuming all the projected finds turn into actual gas resources) are estimated to be worth about $60 billion.

“We want to get this approved very quickly. We certainly do not want to be like the countries that delayed in making decisions and were left without gas in the end,” said Netanyahu. “Instead of the gas staying in the ground, or under the sea in our case, we want to begin to produce gas and to fill the state’s coffers with billions of shekels that will allow us to ease the economic burden on the public, and, of course, to see to our important national needs.”

For those opposed to gas exports, the 40% figure was still far too high. Opposition leader Shelly Yachimovich (Labor) fumed, calling the decision a “stickup of the public treasury by wealthy tycoons,” and threatened to petition the High Court against the decision. Environmental Protection Minister Amir Peretz (Hatnua) said Israel must retain the first 600 billion cubic meters of gas. The current projected discoveries amount to about 950 billion cubic meters. Other MKs demanded that the government keep out of the decision-making process altogether, and leave it to the Knesset.

In Tel Aviv, several dozen social protesters took to the streets, blocking roads and waving signs reading: “Don’t give gas to the tycoons” and “Gas exports = national suicide.”

What to do with Israel’s natural gas reserves was the subject of lengthy deliberations by a committee headed by Shaul Tzemach, the former Director General of the Water and Energy Ministry. In late 2011, Tzemach was appointed to head an inter-ministerial committee to hammer out a policy on how best to use Israel’s newfound natural wealth. The committee included members of the Finance, Environment, Economics, Defense and other ministries.

The committee was faced with pressure to allow the companies that found the gas — including Noble Energy, Delek Drilling, Avner Oil Exploration, and Isramco — freedom to export large amounts, countered by demands by social groups to keep most of it for local consumption. In the end, the committee worked out a compromise: The first 450 bcm would be held for Israel’s use, and companies could export up to half of any greater amount in proven reserves. The proposal would enable the drilling companies to recoup their investment, while providing Israel with up to 25 years of gas reserves. After protests by groups opposed to gas exports, Shalom announced several weeks ago that he would seek to lower the amount to be exported to between 39% and 43% of Israel’s reserves.

The Wednesday announcement — likely to become official policy, when the government votes on the recommendations Sunday — did not sit well with at least one major foreign player in the Israeli gas business. In a deal struck late last year, Australia’s Woodside Petroleum announced it would buy 30% of the Leviathan gas field from the consortium that owns it now, led by Noble Energy and Delek Drilling, in a deal estimated to be worth $1.3 billion. But with Israel’s failure to come to a final decision on how much gas it would allow for export, officials in the company began expressing impatience — to the extent that, according to reports, Woodside had decided to pull out of the Leviathan deal if a decision was not made by the end of June.

Now that a decision has been made, though, Woodside has another reason to back out of the deal. Speaking to the Times of Israel at an event featuring Australian gas industry officials, a top Australian gas industry executive said that Woodside expected to invest and earn money based on the recommendations set by the government-appointed Tzemach Committee. The government’s failure to support the decision of its own committee, the executive said, sows doubts in the minds of investors — leading them to suspect that the government could change its mind again, in response to pressures.

That kind of “flip-flopping” is bad for business, said the Australian energy executive. “Even so, Woodside thinks Israel is a good place to invest. At least Israel has a policy infrastructure and an objective way to appeal decisions. Many of the countries where new gas fields are being found don’t even have that.”

“It’s not uncommon for governments to be pulled in different directions in these matters,” the executive said. “But Woodside believes that things will work out. And it also believes that Israel has more gas than it thinks,” he added. “Estimates by the US Geological Service say that Israel has five times more gas than the best estimates. There is plenty for Israel, for export, for everyone.”

The Australian energy executive made his comments during a recent event that brought a delegation of leading Australian energy executives to Israel — including executives at Woodside — who are seeking business partnerships in the country’s burgeoning energy industry. Under the co-sponsorship of the Australian Trade Commission (Austrade) and the Israel-Australia, New Zealand & Oceania Chamber of Commerce (IACC), the delegation met with government officials and influential figures in the Israeli oil and gas industry.

The fact that Woodside was willing to plunk down over a billion dollars to be in the Israeli gas business means that it expects to get more than its money’s worth from the Leviathan gas field that the company is seeking to purchase. “Woodside is a very conservative company, and is used to working with conservative customers in places like Japan and other Far Eastern countries,” said the Australian. “They are not ‘wildcatters,’ like Noble Energy. If they didn’t think there was enough gas there to make it worth their while, they wouldn’t be in this deal.”

“Taking into account the growing Israeli energy market and the need for world-class expertise to develop these resources, we are pleased to welcome these prominent Australian energy industry leaders to Israel,” said Eric Goldberg, the Austrade representative in Tel Aviv. “With the recent discovery and rapid development of energy infrastructure projects in Israel, there are significant opportunities for Australian suppliers of technology, services, equipment and training to access supply chains in this oil and gas market,” he added.

Woodside is the first large foreign company (other than the exploration companies) that want to make a deal for Israel’s gas, and is a major player in the natural gas industry — so its reaction to the decision is being watched carefully by other potential customers and investors. A Woodside representative at the event said he could not comment on Woodside’s deadline, or how it would react if the recommended Tzemach quotas were reduced, as the government has now done.

However, one expert opposed to exports said Woodside’s hesitation could be a good opportunity for Israel to reconsider the deal from its side. Woodside’s interest in Israeli gas is to export it in the form of liquified natural gas (LNG), said Ariella Berger, head of Oil Alternatives and Energy Research at the Israel Institute for Economic Planning. “The very export policy Woodside is encouraging Israel to follow — LNG exports — has caused Australian consumers and industry to pay more than ever for their domestic gas,” she told the Times of Israel. “A 2012 report by a group representing Australian natural gas users, investors and producers showed that from 2005 to 2011, the price of domestic gas to Western Australian consumers tripled.”

The report, Berger said, seemed to pinpoint the root of the problem on LNG exports. It stated that “despite Australia’s substantial gas resources, local industry is experiencing serious gas shortages and sharply rising prices. Major gas producers are focused on maximizing LNG exports and signing 25 year contracts to supply gas to customers in China, Japan, Korea, and India.” A subsequent report she cited said that “domestic gas users are increasingly being offered “surplus” gas volumes and prices that do not reflect domestic supply, demand, or extraction costs, but are instead linked to East Asia’s LNG market — the highest-priced gas in the world.”

Israel, said Berger, should look hard before it leaps into the waiting arms of Woodside, or any other foreign company looking to make money off Israel’s gas finds.

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