How Israel Turned A Gas Bonanza Into An Antitrust Headache



Unprepared

Israel was poorly prepared for a big energy discovery. Since it did not expect Noble and Delek to find much in the eastern Mediterranean, it did not put many legal restrictions on them.

So when the partners found two major deposits, policymakers started to scramble. First the rules were changed to impose higher taxes on the companies' future profits. The companies objected but the government pushed ahead all the same.

Then Israel's independent antitrust commissioner got involved, ruling earlier this year that Noble and Delek had a monopoly in Tamar and Leviathan and something needed to be done, including assets being sold off to foster competition.

Again the companies protested, but eventually they agreed to a deal struck by parliament in which they would give up smaller assets linked to the Tamar field while keeping all of Leviathan.

Antitrust chief David Gilo was convinced Noble and Delek's position was still anti-competitive and would lead to higher prices and resigned.

Uneasy about the legal ground they stand on, Delek and Noble said they are holding back on investing the $6 billion needed to develop Leviathan and bring it onstream by 2019/2020.

They companies also confirmed they are threatening to take Israel to international arbitration in Switzerland, something that could further put off investors.

For the project to go ahead, Israel's economy minister needs to sign off on a proposal circumventing Gilo's antitrust ruling.

But the minister, Aryeh Deri, a member of the ultra-Orthodox community whose party is a linchpin in Netanyahu's right-wing coalition, is wary. He doesn't want to sign off until a new antitrust chief is in place and has given a second opinion.

Netanyahu could try to override Deri, but he would need to win a vote to do so and only holds a one-seat majority in the 120-seat parliament. It is too risky given Deri's coalition position. Without Deri, Netanyahu's government could collapse.

As a result, the project is effectively frozen, a constant aggravation for Netanyahu and his supporters.

Egyptian Competition

The political pressure has only increased since Egypt discovered the vast Zohr gas field in late August. At an estimated 30 trillion cubic feet, the deposit is a third larger than Leviathan and the 20th largest worldwide.

The competition could mean that Israel would miss out on export contracts, leaving it to focus on the domestic market.

"The discovery has alerted Israel to the risk of losing access to markets both in the region and globally," wrote Michael Barron, the director of global energy and natural resources at the Eurasia Group.


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John Morris  |  October 03, 2015
I think thats called counting the chickens before they hatch. They do that a lot in the EU and UK.