Israeli Move Major Setback to East Med Regional Gas Dreams

Israel appears to be following the footsteps of Poland in ensuring that regulatory and bureaucratic hurdles imperil an opportunity to develop a strong domestic gas supply and energy security, along with export opportunities.

Reversing the course of discussions of the past three years, Israel’s Antitrust Authority said that it would not support an agreement that would allow Noble Energy and Delek Group to maintain their interests in offshore Leviathan and Tamar gas fields.

The move by the regulator will likely lead to the separation of the Leviathan and Tamar interests and force the sale of Leviathan to new participants.

Under the initial agreement, the Noble and Delek had agreed to dispose of the smaller Tanin and Karish gas deposits as part of satisfying the regulator’s requirements.

Binyamin Zomer, Country Manager of Noble Energy Israel said, "For 16 years, Noble Energy has invested in the exploration and development of Israel's gas and oil resources. To date we have invested with our partners close to $6 billion in developing the country's oil and gas sector. These investments contribute to the Israeli economy and environment, and at the same time grant Israel energy independence while providing an opportunity for regional cooperation and contributing to regional stability."

He added, "The entry of Noble Energy into the licenses, which then became the Leviathan discovery, took place with the full knowledge and approval of the Israeli government, and subject to the Petroleum Law and all laws. The reservations of the Antitrust Authority regulator over Noble Energy's entry into these licenses, after they were declared a discovery, were without legal basis when first mentioned, and remain groundless today."

The ruling has huge implications for the future of the region, effectively postponing the development of the major gas discovery for many years, or at worst case, not at all.

Gal Luft, co-director of the Institute for the Analysis of Global Security (IAGS), who has closely followed developments in the Israeli gas sector described the regulatory decision as potentially "the premature – and tragic – death of the Israeli gas dream."

In an August 2013 article, “Israel’s Zero Gas Game”, Mr Luft had forewarned that Israel “had become so busy dividing the pie that its leaders has forgot it must first be baked” and pointed to the failure of the Israeli government to present a clear vision for the country’s energy sector, to articulate the rights and responsibilities of foreign investors and most importantly set rules and stick to them, may lead to a situation  that “the gas will be left in the ground and the startup nation will be more worthy of the title ‘shutdown nation’.

Exploration activities in Israel’s exclusive economic zone had already been impacted by industry concerns over the regulatory environment, by financial and taxation issues and by potential export restrictions.

Earlier this year, Woodside Petroleum walked away from deal that would have led to the Australian giant acquiring 25% of the Leviathan  as a result of a disagreement between the company and the Israeli Tax Authority.