IEC asks antitrust boss to probe Noble Energy for holding it ‘hostage’
Israel Electric Corporation says natural gas operator abusing monopoly status by shutting gas taps to keep prices high, despite lower price agreed by other shareholders
Sue Surkes is The Times of Israel's environment reporter
Just two days after Chevron announced completion of its deal to take over Texas-based Noble Energy, the American oil and gas conglomerate was accused Wednesday of “holding the Israeli electricity sector hostage” and of “abusing its monopolistic” position.
The Israel Electric Corporation wrote Wednesday to the antitrust Competition Authority asking it to intervene urgently after Noble Energy/Chevron and Delek Drilling refused to sell gas from the Tamar gas field for a price below what was agreed in a controversial contract in 2012.
That was despite an agreement to sell for less by the well’s other four shareholders, which, together, form a majority.
Sources told the Times of Israel that the Competition Authority has started to investigate the matter.
According to the Calcalist business daily, the IEC wrote to Competition Authority head Michal Halperin that recent events have “dramatic significance for the stability, strength and survival of the gas economy in general and the electricity sector in particular.”
The letter charged: “At the heart of the events (of the past couple of days) is the abusive use of monopolistic power by Noble, which is holding the Israeli electricity sector hostage and is refusing to supply gas ordered by the [IEC’s] systems management unit in order to suppress competition in the natural gas market and increase its profitability.”
One of the shareholders, Tamar Petroleum Ltd, also asked the Competition Authority to intervene on Wednesday, filing a document to the Tel Aviv Stock Exchange (in Hebrew) in which it accused Noble Energy of violating Competition Law.
Its letter slammed Noble’s position as unreasonable, saying “there is no argument that the Tamar reservoir can supply gas to the IEC from an operational point of view. The only reason for the refusal is a conflict of interest, with Noble acting [for the benefit] of its holdings in [the] Leviathan [gas field]. This behavior by Noble shows improper use of power by a monopolistic owner of natural gas in Israel, in violation of the Competition Law 1988.”
In March 2012, when the Tamar gas field — then wholly owned by Noble Energy and Israeli tycoon Yitzhak Tshuva’s Delek Drilling — signed a monopoly gas contract with the IEC for 17 years (with an option to partially renegotiate the price in 2021). Rather than link the gas price to Brent Crude Oil, which has plummeted since then, the parties agreed to deal in US currency and to index to the US CPI plus 1% per year until 2019, and to the US CPI minus 1% per year for the remaining years. The result is that as prices for gas have crashed worldwide, the price of the gas sold from the Tamar field to the IEC has constantly risen and currently stands at $6.3 per unit of heat.
Last year, Calcalist revealed that two of the shareholders, Isramco and Tamar Petroleum Ltd, wanted to sell gas from Tamar to the IEC at a lower rate, but that Noble Energy was using its veto to block such a move because it wanted supplies to come from the Leviathan gas field, which began commercial production in January.
Noble/Chevron and Delek Drilling control 85% of Leviathan, compared to 47% of Tamar, which means that more of the profit from the former goes into their pockets. Leviathan is selling gas for around $4.7 per unit of heat.
On Sunday, the IEC signed an annex to the 2012 gas agreement — valued at around $50 million — with Koby Maimon’s Isramco (which has the largest shareholding in the Tamar field, at 28.75%), Tamar Petroleum Ltd (16.75%), Dor Gas (4%) and Everest Infrastructure (3.5%). Together, these companies own a majority (53%) of Tamar.
That annex would have allowed the IEC to buy an additional, roughly 1.75 billion cubic meters of gas at the original price (according to a “take or pay” clause in the 2012 contract that ensured a certain amount of gas would be paid for, whether it was used or not), and a sliding price, averaging out at just under $4, for another roughly 2 billion cubic meters. At its lowest extreme, this price would reach $3.70.
But Noble Energy and Delek Drilling refused to sign.
Some 24 hours later, Noble Energy informed the IEC by email that it would not supply gas at the new price unless it heard by return of mail that the price of $6.3 would be honored.
At 6 a.m. Tuesday, Noble told the IEC official responsible for ordering gas that supplies would come from the Leviathan field instead, at a cost of $4.7 per unit of heat.
To complicate matters, the deputy attorney general, backed by the energy and finance ministries, confirmed Tuesday that Noble Energy still has the right to veto new contracts, at least until next year, and is not — as claimed by its adversaries — violating the so-called Gas Framework deal signed with the government in 2015.
Noble Energy’s veto will stop either when Noble Energy/Chevron sells its take in Tamar to an independent third party not connected to it or to Delek Drilling, or by December next year, whichever comes first.
The IEC maintains that Noble Energy, which operates both Tamar and Leviathan, cannot veto, in its capacity as operator, something in which it has an interest as a shareholder.
Lobby99, a crowd-funded public lobbying group, accused Chevron of acting “as though they think that because of their power, they can shut down the country to get their way. The Israeli regulators, and particularly the Competition Commissioner, must open an immediate criminal investigation into this act and show that money cannot buy Chevron exemption from the law.”
