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Oil Amp Gas
Vast Israeli gas field in antitrust swoop
From the Financial Times of Tue, 23 Dec 2014 17:22:31 GMT
MEDITERRANEAN SEA, ISRAEL - FEBRUARY 2013: In this handout image provided by Albatross, The Tamar drilling natural gas production platform is seen some 25 kilometers West of the Ashkelon shore in February 2013 in Israel. The offshore Tamar drilling site which was originally dispatched from a shipyard in Texas at the end of last year is due to start producing natural gas next week. Over the past few years Israel has suffered from a shortage in natural gas, but with the new platform that weighs 34,000 tons and will be mainly operated by Israelis, the US company Nobel Energy which owns a 36% stake in Tamar, hopes to change Israel's energy situation as well as the economy as a whole. (Photo Photo by Albatross via Getty Images)©Getty

The future of one of the world’s biggest offshore gas fields is under threat after Israel’s antitrust regulator said it would recommend to courts that the partnership developing the $6.5bn Leviathan project be broken up.

David Gilo, who heads Israel’s Antitrust Authority, said on Tuesday that he would retreat from an agreement under discussion for three years that would have allowed Noble Energy of the US and Israel’s Delek to keep control of the vast Leviathan field off Haifa in northern Israel, and the smaller Tamar field.

Under that agreement, the two companies would have sold Karish and Tanin, two smaller gas deposits, to create more competition in the country’s gas market.

One of the world’s biggest offshore gas finds in recent years with an estimated 22tn cubic feet of reserves, Leviathan was touted as a potential game-changer for the energy map of the eastern Mediterranean when it was discovered four years ago.

But it has fallen victim to what industry figures describe as an increasingly hostile regulatory environment and the tetchy relations between Israeli politicians and big business.

Mr Gilo’s decision comes as a mood of economic populism takes hold in Israel in advance of an election next March in which Benjamin Netanyahu, the rightwing prime minister, faces a challenge from leftwing and centrist parties.

The Tel Aviv Stock Exchange suspended trading in shares of energy companies, including Delek, on Tuesday morning as the news emerged. Bini Zomer, head of Noble’s Israeli unit, said the watchdog’s decision “will cast a shadow over the future of the oil and gas industry in Israel and will impact Noble Energy’s investment there”.

The company hinted at litigation, saying it was monitoring the situation and would “take all action necessary to protect its legal and legitimate rights”. At the same time, it said it was committed to developing Leviathan as soon as the right regulatory, commercial and financial conditions were in place.

Analysts and executives speculated that the antitrust body might now either force Delek and Noble to sell all or some of their shares in Leviathan or Tamar, or force them to sell gas in competition with each other.

Prospecting for offshore gas in Israel has halted recently because of energy companies’ concern over regulatory risk.

An executive at one of the companies said he hoped Israel’s government would “pull itself together and not make this decision that would severely damage the Israeli economy and bury the gas industry in Israel”.

Delek and Avner, another Israeli company, own 45 per cent of Leviathan, and Noble owns 40 per cent. Delek and Noble also control Tamar, which began pumping gas last year and contributed a half a percentage point to Israel’s growth in gross domestic product.

Israel’s discovery of large natural gas deposits in recent years has been widely seen as transformative both for its economy and relations with its neighbours in the eastern Mediterranean, with many of which it has strained relations because of the conflict with the Palestinians.

The partners in Leviathan planned to begin work at the field early in the new year, and produce gas on a floating production and storage platform there by 2017.

Delek and Noble this year signed letters of intent for a $15bn deal to sell gas to Jordan’s national power company, and a $30bn contract to sell gas to Britain’s BG Group in Egypt. The companies studied possible pipeline deals involving Cyprus and Turkey, and European customers — keen to find an alternative to Russian energy supplies after the Ukraine conflict — had also expressed an interest in Leviathan’s gas.

“This is the wrong decision because it could hinder the development of Leviathan and of additional gas fields Karish and Tanin, which are greatly needed from a national security and energy security perspecitve,” said Amit Mor, chief executive of Eco Energy, an Israeli consultancy. If there were any problems with Tamar – which Mr Mor said accounted for 60 per cent of the energy used in Israel – “we [Israelis and Palestinians] are going to sit in the dark”.

The antitrust watchdog’s decision comes at a time of slowing economic growth and complaints from Israeli and foreign companies of a souring business climate in the country.

[The decision] will cast a shadow over the future of the oil and gas industry in Israel

- Bini Zomer, head of Noble Energy’s Israeli unit

Mass social protests in 2011 by middle-class Israelis, angry about high prices and perceived predatory behaviour by the country’s business tycoons, swept a number of populist politicians into the Knesset and Mr Netanyahu’s government. The dominant position of Noble and Delek – owned by the Israeli billionaire Yitzhak Tshuva – on the gas market prompted MPs and government to draft rules limiting the amount of gas the companies could export.

Australia’s Woodside Petroleum pulled out of a $2.7bn deal to buy 25 per cent of Leviathan in May, citing unspecified commercial reasons; industry executives said regulatory and tax uncertainty in Israel motivated the move.

In a report on the world gas industry prepared for Norway this year, the consultancy IHS ranked Israel lower than Angola or Mozambique in terms of officials’ respect for contracts.

Yair Lapid, the populist finance minister in Mr Netanyahu’s cabinet that collapsed last month, last year vetoed a proposed merger between Israel Chemicals, one of the country’s largest companies, and Canada’s Potash.

The Israeli company, angered by that and by Israel’s hike in the royalty it pays the state, has suspended investments in its home country and is investing in China and Spain.

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