Regulator breaks up energy ‘cartel’ developing gas fields

Antitrust Authority acts against Noble, Delek ‘monopoly’; move could hold up extraction for years; US-based firm to reconsider investment

Lazar Berman is The Times of Israel's diplomatic reporter

Gas rigs in the Tamar field, off the coast of Israel, in June 2014. (Moshe Shai/Flash90)
Gas rigs in the Tamar field, off the coast of Israel, in June 2014. (Moshe Shai/Flash90)

The Antitrust Authority decided Tuesday to break up a deal allowing a consortium of two energy companies to develop Israel’s largest gas fields, in a dramatic move reversing an arrangement that had come under fire.

The decision comes a day after the authority announced that it was considering voiding the agreement that allows US-based Noble Energy and Israel’s Delek Group to develop the Leviathan and Tamar gas sites in the Mediterranean, on grounds that the arrangement constitutes a cartel.

The decision means that Noble and Delek will have to sell their shares in either Leviathan or the smaller Tamar field, or break up the consortium.

The arrangement that was reversed was a compromise between the Antitrust Authority and the two energy companies, according to which they could continue to develop Tamar and Leviathan if they sold their shares in the smaller “Karish” and “Tanin” sites.

The Antitrust Authority decision is subject to the results of a hearing, which will be held next week.

Delek owner Yitzhak Tshuva castigated the decision, telling Army Radio it would “lead to the downgrade of Israel’s credit rating.”

Tshuva, a self-made billionaire, also said it was unfair to penalize him after he invested so much developing the field.

Speaking to Army Radio, former Infrastructure Minister MK Uzi Landau called the decision “dangerous and extremely damaging.”

“Everyone who until now considered investing has taken a step back. There is a lack of understanding among the Knesset members who turned to the Authority, a lack of responsibility…It’s all populism. I say this with great pain.”

But geologist Yossi Langotsky, the driving force behind Israel’s offshore energy exploration who relinquished his stake shortly before the gas was found, praised the move. “It’s a Hanukkah miracle…[Antitrust Authority head David] Gilo displayed bravery, and if he continues he will remove the threat that Israeli will be captive to the Tshuva gang.”

Before the decision, Noble Energy threatened Tuesday morning to reconsider investing in Israel if the country goes back on the agreement it reached with the companies to allow them to develop the fields.

Noble’s director of Corporate Affairs in Israel, Bini Zomer, said that the decision would “cast a shadow” over the future of gas and oil development in the country, and would affect Noble’s investments in Israel, Channel 2 reported.

News of the announcement caused Delek’s shares to plummet 16.25 percent on the Tel Aviv stock exchange.

Leviathan, which boasts an estimated 16-18 trillion cubic feet of gas, was discovered in 2010 some 130 kilometers (81 miles) west of Haifa. It was expected to become operational in 2016, but the Antitrust Authority’s decision could push that back several years.

Israel began pumping natural gas in March 2013 from the Tamar deposit — discovered in 2009 and located some 90 kilometers (56 miles) west of Haifa — which holds an estimated 8.5 trillion cubic feet of natural gas.

In early September, Israel signed a memorandum of understanding with Jordan to supply the Hashemite Kingdom with $15 billion worth of natural gas from its Leviathan energy field over 15 years.

Israel decided last year to export 40% of the country’s offshore gas finds, and has since signed a 20-year, $1.2 billion deal with a Palestinian firm, and in June signed a letter of intent to supply energy to an Egyptian facility as well.

The finds were expected to transform Israel from an energy importer to a major world player in the gas market.

The move by the regulator comes days after an Italian report found that the consortium responsible for the Tamar gas field was making “monopolistic contractual demands” on Israel, which would lead to a steep rise in electricity costs for Israelis.

The cost of living and the control that “tycoon” business leaders hold over important sectors of the economy have been hot-button political issues for Israelis in recent years. Delek Group owner Tshuva is considered one of Israel’s richest businessmen, with major holdings in a number of different industries.

News of a meeting between the Antitrust Authority and the gas companies Monday caused shares in both companies to sink. Delek fell 6.3% Monday, while Noble’s shares dropped 0.47%.

Israeli power companies, like the Israel Electric Corporation, have long-term contracts to buy gas from the Tamar field, while Israel is still trying to finalize deals for the Leviathan gas that the government has authorized for foreign export.

Orit Farkash-Cohen, chairwoman of the Public Utilities Authority (Electricity), recently wrote a letter to Prime Minister Benjamin Netanyahu and Minister of National Infrastructure, Energy, and Water Silvan Shalom warning that the deal Israel had reached favored the consortium.

“A monopolistic situation has emerged, with the gas contracts presented to the Authority including conditions that are unacceptable in a competitive gas market — in particular the unbalanced distribution of risk that favors the gas supplier, putting the consumer at risk,” she wrote.

David Shamah contributed to this report. 

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