Failed Attempt to Introduce Competition to the Israeli Natural Gas Market
The Leviathan partners will be forced to allow the entry of a new player into the domestic natural gas market. Israel’s gas field are currently controlled by Texas-based Noble Energy Inc and Israel’s Delek Group Ltd. The most substantial fields offshore Israel are the Leviathan and the Tamar. Noble Energy has a 36 percent operated working interest at Tamar, a field offshore Israel with gross mean resources of 10 trillion cubic feet (Tcf) of natural gas. Tamar was discovered by Noble in 2009 and was the largest deepwater natural gas discovery in the world that year. The Leviathan has gross mean resources of 18 Tcf of natural gas. Delek owns 45% of Leviathan and Noble controls 40%. Delek and Noble together own 67% of Tamar and 85% of Leviathan.
An agreement between the Leviathan partners and the Antitrust Authority is expected to be announced soon. Under the agreement, Delek and Noble will be selling some of their new discoveries to oil and gas companies that will compete against the Tamar and Leviathan gas fields for domestic customers only - according to published details of the pending agreement.. The new player(s) will not be allowed to export the natural gas of the newly bought gas fields. While Israel’s Antitrust Authority’s intention was to introduce conditions that will allow real and fair competition in the Israeli market, the yet to be published agreement between the Authority and the Leviathan partners is already attracting criticism for failing to achieve its purpose.
The buyer will own a total of less than 8% of Israel’s proven gas reserves. The company will have to bring the gas from the bought offshore gas fields onshore for sales in the domestic market only which will involve high infrastructure costs. The deal will be sealed in two years time allowing enough time for the Leviathan partners to direct their gas domestically to Israeli customers. Under the pending agreement between the Authority and Delek/Noble, the partners will be selling the Karish and Tanin gas fields (which respectively hold an estimated 50 billion and 30 billion cubic meters in natural gas reserves) and a negligible quantity of natural gas from the Leviathan.
The introduction of a new player into the domestic market may prevent the accusation of the Leviathan partners forming a “cartel”. Whether the agreement will in reality make a difference in is contestable. In October 2013, the Supreme Court ratified a June 2013 cabinet decision to export 40% of Israel’s natural gas. The sale of Israeli gas to export markets - starting by immediate neighbors - will generate billions of shekels in revenues. Speculations related to the first destinations of Israeli gas have somehow ended when Israel recently signed a deal to export gas to the Palestinian Authority. Israel has also declared it will be building a pipeline to Jordan that is expected to be completed by 2016 to supply the Jordanian market with natural gas. Israel may also be exporting gas to neighboring Egypt suffering from domestic shortfalls due to export obligations and a growing domestic demand.
Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean. Email Karen on ayat_karen@hotmail.com. Follow her on Twitter: @karenayat