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A ‘Leviathan’ Of A Controversy

A ‘Leviathan’ Of A Controversy

Israel’s natural gas saga developing some heated plot lines.

Tel Aviv — When energy exploration companies announced the discovery of a massive offshore natural gas reserve 80 miles from Haifa, Israelis celebrated the find as a boon to the local economy that would lower prices, fill government coffers and ensure the country’s energy security for decades to come.

Five years later, what to do with the reserves has become an ongoing political and regulatory mess for the government.

The Leviathan gas field is at the center of a years-long dispute in which Prime Minister Benjamin Netanyahu is accused by political critics of pushing an energy deal that leaves the Israeli public at the mercy of a U.S.-Israeli energy cartel with the ability to dictate a premium on their electricity bills for years to come.

The gas consortium that owns the rights to the field — led by Houston-based exploration company Noble Energy and the Delek Group — is complaining that Israel’s government has created a regulatory mess by changing the terms of the deal, letting lucrative export deals pass it by, scaring off new investors and boosting risks that the massive field will never be tapped. They say that the government stands to pocket $100 billion over the next 20 years from gas royalties.

But critics say that Netanyahu is ignoring the warnings of government regulators and instead ramming through a deal worth billions of dollars that hands over a public resource to Israel business tycoon Yitzhak Tshuva, the owner of the Delek energy group, and the exploration company Noble Energy.

“There’s no potential for competition in the gas framework; there’s no assurance for effective long-term price controls,” David Gilo, an antitrust commissioner who resigned several months ago over the gas deal, said in a speech at a business conference last week. “The environment and competition have come out on the bottom in this agreement.”

The latest uproar came this week when Israel’s economic minister, Aryeh Deri, resigned rather than override an Israeli antitrust commissioner’s ruling that the proposed arrangement would establish a monopoly without giving the government enough price oversight.

After giving Deri’s remaining government ministries extra budgets as compensation, Netanyahu, who now has taken over as economic minister, will invoke a never-before-used legal clause allowing the cabinet to veto the antitrust commissioner for reason of national security. Opposition politicians have appealed to the attorney general to see if the move is kosher.

Deri, who pledged to represent Israel’s “transparent” lower class during the election, is not the only populist politician to stand aside. Finance Minister Moshe Kahlon, who also pledged to represent the interests of the middle and working class during the election and weigh in on the gas deal, announced earlier this year that he had a conflict of interest and could not be involved.

“This is a sordid maneuver and an irrational and dubious move that will cost the citizens of Israel, according to international estimates, billions of shekels,” wrote Shelly Yachimovich of the opposition Labor Party on her Facebook page.

Using the slogan “stop the gas theft,” protest organizers are planning demonstrations this weekend in Tel Aviv, Jerusalem and Beersheva.

The controversy over the so-called “gas framework” has kicked up charges of crony capitalism from social activists and economic experts like the Finance Ministry’s former accountant general. The charges recall the slogans of Israel’s socioeconomic protests four years ago that took over Tel Aviv’s main boulevard and brought hundreds of thousands into the streets.

“The bottom line is that Israel has become the country with the highest housing prices in the West, the most expensive cars in the West, the most expensive food, and now gas,” said Yaron Zelicha, the former accountant general in the Finance Ministry.

With Noble threatening to take action to protect its stake in the project in case the gas framework falters, the prime minister has warned that approval is urgent and that Israel’s national security could be hurt by foot dragging. Netanyahu predicted that Israel’s natural gas resources will remain untapped and Israel’s government will forfeit tax proceeds from lucrative export contracts as energy companies look to countries like Iran for energy supply.

“If the gas framework doesn’t advance, industry and the entire economy will suffer a serious blow,” said Energy and Infrastructure Minister Yuval Steinitz, a close ally of the prime minister at a business conference last week sponsored by Haaretz. “Anyone who has eyes in his head, anyone who is rational and doesn’t get worked up must do their utmost to ensure that the gas framework is approved after three years of delays and serious damage.”

Private lobbyists and U.S. Congress members have even come to Israel to lobby Israel’s government on behalf of Noble Energy. Last year, Australian energy company Woodside cancelled a deal to come into Leviathan as a leading investor.

An official close to the energy consortium argued that the price that it will charge Israeli customers will be in line with global rates for natural gas. Opponents charge it will be twice as expensive. The official complained that Israeli officials upped requirements for government royalties, clamped tighter limits on lucrative exports, and required divestment of holdings in other Israeli offshore wells. The official dismissed the public protest against the gas deal as a marginal movement of leftists and “Marxists,” boosted by the liberal “Tel Aviv-based” media.

“From the minute of the discovery, it’s been a regulatory roller coaster. Every year they change the rules. You can’t invest and plan if you are not sure what the price is,” said the official. “No one will come here if there are no basic ground rules. Israel has got a very bad reputation in the world, especially in the gas world.”

A string of gas discoveries in Israel’s territorial waters since 2000 spurred first-ever interest in the country’s energy industry: in 2009 the Tamar field of 7.9 trillion cubic feet was discovered. Then came Leviathan with 16 trillion cubic feet. Several years later Crocodile” was discovered with 1.1 trillion cubic feet. Only Tamar is currently supplying Israel’s energy network.

The size of the gas finds made Israel the toast of the energy world and spurred expectations that the country would eventually reach a deal to export it to Europe through Turkey. In recent years, Israel signed initial deals for modest exports to Jordan and Egypt. But the exports looked less of a sure thing after a gas field bigger than Leviathan was discovered in August off the coast of Egypt — raising the potential for competition.

The energy saga is expected to drag on for the near future as the Knesset’s Economics Committee is planning to hold public hearings on the gas agreement, despite having no power to block the deal.

The gas opponents are expected to submit a petition to the Supreme Court against the deal, but political analysts and legal experts say the high court is unlikely to intervene. Despite years of political protests and wrangling over legislation, experts say that eventually the prime minister will push it through.

“The gas framework is very good for the Israeli economy — the price is not too costly,” said Avi Weiss, an economics professor at Bar-Ilan University and director of the Taub Center. “All of the cries of disaster are unreasonable. The disaster would be to not do it.”

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