Watching a country squabble its endowment of hydrocarbons into developmental stalemate warms few hearts in the international oil and gas industry. Even by standards of the day, with environmental groups increasingly adapt at turning governmental processes into tools of obstructionism, resource mismanagement by Israel is disheartening.
Here's a small democratic country with a vibrant economy and danger all around, with enough natural gas to fill its own needs and plenty remaining to export, yet approaching the costly brink of unmet potential. Yes, some of the reason gas reserves exceeding 31 tcf might never be developed is geopolitical. Every possible route for Israeli gas exports involves a border crossing hot with international friction. Yet Israel is making exports an increasingly remote possibility with conflict inside its borders.
Energetic politics
Israeli politics is notoriously energetic and multifaceted. Understanding the dynamics and outcomes from outside the country is difficult, maybe impossible. Yet if Israel is to revive gas development off its shores, it must attract investment and technology from abroad. The view from elsewhere matters, therefore, even if that view can't fully account for Israeli political intrigues.
The external view, the view that guides international investment decisions, cannot have migrated to the favor of Israeli gas development this year. The country already had demonstrated its prickliness with development of Tamar gas field. Because of political opposition to pipeline landfall nearest the field, operator Noble Energy Corp. and partners invested considerable extra capital to lay a much longer pipeline to an existing field connected to land.
Resistance to the cheaper option can be rationalized by the sensitivity to land use that's to be expected in a tiny country. The political system accommodated it. Tamar, discovered in 2009, has produced commercially since March 2013. Now variations of the Noble consortium would like to develop other discoveries off Israel, especially the 22 tcf of gas thought to be in place in Leviathan field. To that end, Israel is working backwards.
The government first worried about reserves dedicated to the Israeli market versus amounts available for export. Months of study and political haggling yielded an agreement setting percentage shares for domestic use and export.
Then concern arose about possible exertion of market power by Noble and the Delek Group, whose subsidiaries participate with the US company in Israeli offshore development with interests varying by field. Last December, Antitrust Commissioner David Gilo began studying whether the Noble-Delek partnership represented a "restrictive agreement" violating Israeli law. A proposed agreement published late in June calls on Noble to trim its Tamar interests while remaining operator. Delek would have to sell its interests Tamar, and it and Noble would have to sell their stakes in smaller, undeveloped Karish and Tanin fields. A vote scheduled for July 29 in the Israeli cabinet and Knesset was postponed at the last minute. The Knesset is now in summer recess.
Meanwhile, a committee of representatives from several Israeli ministries has been studying supervision by the government of natural gas prices. According to an Aug. 11 report in the Jerusalem Post citing "government sources familiar with the matter," the committee has determined that the price of Tamar gas could be lowered by nearly 30% from recent levels without critically hurting field profitability.
The outside perspective
Outside Israel, oil and gas companies are slashing investments, laying off workers, and elevating decision hurdles for large, risky projects. From that perspective, Israel increasingly looks like a geologically attractive country whose government enters contracts subject to politically motivated reconsideration, a government willing to confiscate assets, a government respectful of market forces when worried about monopoly but less so when the mood strikes to consider price controls. And it's a government that takes a long time making decisions.
From outside the country, political explanations for the existence of these risks matter less than the risks themselves. From there, Israel-energy-needy Israel-appears to be a country not much interested in developing a promising gas resource.
