Israel’s Gas Dream – The End Is Nigh

Jerry Gordon, NER:

Gal Luft nails it. The ruling of Dr. Gilo of Israel’s Anti-Trust Authority at the behest of Labor Party stalwarts like Shelli Yacimovitch and the duet of Herzog – Livini  virtually destroys any capability to complete development of the Leviathan field, honor agreements in the region for delivering gas and scuppers the Geo-politically important Eastern Mediterranean pipeline connecting it via Cyprus, Greece and Italy to the EU. This was a torpedo aimed at sinking Bibi in the March 2017 snap election.

You could see this train wreck coming in the failure  of the Noble-Delek consortium to complete the Aussie Woodside Pty. minority ownership in Leviathan in May 2014 – see:Woodside Terminates Leviathan Deal – WSJ.  Noble Energy’s NYSE listing plummeting 3.8% it is demanding an immediate hearing of this pussilanimous ruling of Dr. Gilo. The TASE was similarly rattled.

Note these Globes Israel Business articles on this economically mind numbing and dangerous ruling that throws into serious question Israel’s economic future:

Regulator decides Tamar and Leviathan form monopoly

Note these comments from Noble’s  Chairman and CEO in a PR News Release today:

HOUSTON, Dec. 23, 2014 /PRNewswire/ — Earlier today, Noble Energy, Inc. (NYSE:NBL) and its partners in the Leviathan field were advised by the Israel Anti-trust Authority of its decision to not submit the Consent Decree to the Anti-trust Tribunal for final approval.  In response, Noble Energy and partners have requested a hearing on the topic with the Anti-trust Authority, which Noble Energy expects to occur in the next few weeks.
In March 2014, Noble Energy, its partners, and the Anti-trust Authority reached agreement for the Consent Decree that included the divestiture of the Tanin and Karish gas fields.  This agreement is a key component for the final investment decision on the Leviathan development.
Charles D. Davidson, Noble Energy’s Chairman, commented, “The actions of the Anti-trust Authority are another disturbing example of the uncertain regulatory environment in Israel.  Specifically, this is a matter that we believed was resolved some time ago and follows on recent assurances from the Anti-trust Authority that approval was forthcoming.  We believe this is a harmful precedent for Israel to set and we will vigorously defend our rights relating to our assets.”
David L. Stover, President and Chief Executive Officer, added, “We are disappointed in this latest communication from the Anti-trust Authority.  Final resolution of this item, as well as a number of other regulatory matters, is required before we proceed with additional exploration or development investments in our Israel business.”

by Gal Luft, Journal of Energy Security
December 23, 2014

The development of the Leviathan natural gas field has been postponed indefinitely.

DelekIn the five years since the discovery of the Tamar and Leviathan natural gas fields off the coast of Israel, the Israeli energy discourse has focused on questions like what to do with the gas, how much of it to export and to whom, and what the fairest distribution of profits would be among the gas partners, headed by Noble Energy and Delek Energy, and the Israeli public.

But after years of delays and billions of dollars spent, a new and increasingly likely scenario should be considered – the premature – and tragic – death of the Israeli gas dream. I alluded to this option in an August 2013 article titled “Israel’s Zero Gas Game” in which I warned that Israel has become so busy dividing the pie that its leaders forgot it must first be baked and that due to the failure of the government to present a clear vision for the country’s energy sector, articulate the rights and responsibilities of foreign investors and most importantly set rules and stick to them, “the gas will be left in the ground and the startup nation will be more worthy of the title ‘shutdown nation’.”

Perhaps that sounded crazy at the time. Today, with the decision of the Israeli Anti-Trust Authority to revoke an arrangement permitting Noble-Delek partners to develop Leviathan, declaring them a cartel – a move that will require the separation of Leviathan from Tamar and the sale of Leviathan to a new partnership, effectively postponing the development of Leviathan indefinitely – the scenario of “zero gas” – and perhaps even the withdrawal of Noble from Israel altogether – should be considered seriously.

In deciding to enter Israel Noble has taken a huge financial, regulatory and geopolitical risk. However, the size of the discoveries, the potential of finding oil under the gas layers and the doubling of the company’s market capitalization made the move easy to justify to its shareholders. But the Texas company, the only international energy company that was willing to set foot in Israel, was welcomed with no red carpet. Instead it was ushered through a Via Dolorosa of bureaucratic torture which eliminated any chance for gas production before the end of 2018 – ten years from the beginning of exploration. A ten year lead time from discovery to production is a lot to ask of a publicly traded company which has to satisfy quarterly thinking and profit hungry shareholders. But in light of Noble’s recent stock performance, dropping from $80 in the summer to $50 today, the decision of the Israeli government provides an impetus to the company’s leadership, not to mention the new CEO David Stover, to reconsider the commitment to Israel and begin to seek greener pastures.

The Israeli government’s ruling has huge implications for the future of the region as it means that at best the supply of gas from Leviathan will be delayed into the 2020s. At worst it will not happen at all. The government’s concern about a gas monopoly is a legitimate one, especially during an election campaign when issues of cost of living dominate the local political discourse. But its hopes that the hot potato called Leviathan can somehow be sold to new partners require a lot of faith. There are many people with money who may be tempted to buy into a partnership in a 22 trillion cubic feet (tcf) field, but owning a stake in a gas field without an operator at hand is like owning a gold mine on the moon.

There are very few oil and gas companies who have both the experience of drilling in deep waters and the willingness to associate themselves with Israel, especially in light of Noble’s experience. With falling energy prices worldwide, the chance of a Noble-like operator popping out of nowhere is slim. This means that in its desire to avoid the creation of a monopoly, Israel is taking the risk that Leviathan, the world’s largest offshore gas discovery of the past decade, will not be developed for many years to come – if ever.

The losers will first and foremost be the Israeli people who will lose not only billions of dollars in tax revenue and the main engine of growth of their economy but also the prospects of securing their energy supply for generations. The scenario is equally bad for Jordan, Egypt and the Palestinian Authority who are counting on Leviathan gas for their economic well-being and which have all signed letters of intent to buy Israeli gas despite local opposition from their respective Israel-hating Islamists. Europe will also be a casualty since a portion of Leviathan was aimed for two LNG terminals in Egypt from where it would have been shipped to European countries aspiring to become less dependent on Russia’s gas.

Other than the handful of lawyers who will earn millions litigating the dispute between Noble and the Israeli government in international courts, the biggest winner will be Cyprus. In December 2011 Noble announced the discovery of 7 tcf in a field northwest of Leviathan called Aphrodite (block 12). Other blocks have been opened for bids since attracting interest from a handful of large oil and gas companies including Total of France, Kogas of South Korea, ENI of Italy and Petronas of Malaysia. But with all eyes on Leviathan, Cyprus became an uninteresting side show. This may soon change. Cyprus may not be a paragon of regulatory stability and certainly not an investors’ haven and its tense relations with Turkey pose some geopolitical risk, but the fatigue from Israel’s energy shenanigans could bring about a shift from Israel to Cyprus as the new center of gravity in the East Mediterranean energy play.

There is no polite way of saying this. Israel’s latest decision is tantamount to nationalization of the kind seen in Argentina, Venezuela, Mexico and Russia. All of those governments sugarcoated their decision invoking the need to protect the public interest. The investment community and global oil industry got the message and wrote off those countries. With this miserable decision, Israel has just lodged itself into this notorious club. The price will be paid in spades – and sooner than most Israelis realize.

Gal Luft is co-director of the Institute for the Analysis of Global Security (IAGS), senior adviser to the United States Energy Security Council, and a fellow at the Middle East Forum.

December 24, 2014 | 14 Comments »

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14 Comments / 14 Comments

  1. “But the Texas company, the only international energy company that was willing to set foot in Israel, was welcomed with no red carpet.” That is the Jews!!!!!!! Something wrong with anyone who likes us. We make them” run the gauntlet” to prove themselves.

  2. Hi, Sebastien

    Thank you very much for posting on this thread that “appeared to be dead, yet it lives!” It’s good to see that Israel’s petroleum industry is healthy. If they manage to avoid some sort of “Nordstream” payback by the EU’s enemies (namely, Russia), they could profit during the current energy and military crisis. God only knows what course that will take.

    BTW I hope everyone here realizes that “Michael Comments” is NOT Michael S

  3. Shmuel HaLevi’s technical insights only emphasize the necessity of retaining control of Yehuda and Shomron. Because so much of Israel is within short range of these highlands, massive numbers of relatively cheap artillery can be hidden within civilian areas. Unlike the terrorist armies Israel has faced over the last 39 years, the Iranians are patient and disciplined. While Israeli technology can hopefully counteract Lebanon and Iran based weapons, the extraordinary advantages of artillery and rockets based in Yehuda and Shomron, especially as these weapons will be located in civilian population areas, cannot be overestimated.

  4. @ Michael Comments:
    The consensus among most if not all of the very well connected here in Israel, is that the purported natural gas underhanded plan is an elections influencing attempt by foreign intelligence services, (specifics are known), helping the moribund Livni, Peres and others associates campaign.
    Meanwhile and in spite of fabricated polls, every day another of Livni’s third consecutive party, “hatnuah”, associates is leaving her and politics. They know the truth.
    No changes are going to affect the present agreement with Noble, though, the rest of the huge fields and massive shale oil reserves will be firmly controlled by the Israeli taxpayers representatives. Those are our national resources.
    IRAN: I agree on that the Netanyahu actions… regarding that are apparently dismal. Still, Israel may have a few instruments able to sharply cut back Iran’s and its proxies plans.
    Terse and simple.
    I am a retired US Department of Defense Military Avionics Programs Senior-Fellow Engineer with specialized training at the US Naval Weapons Center in China Lake and at Sandia National Labs. For reasons known to the US government I was invited to celebrate 4th of July 1992 at Trinity Site at White Sands, Alamogordo Test Range. Site of the first US detonations of nuclear devices.
    I am also listed as Invited Consultant to the Israeli Ministry of Defense. Who knows why they did that…
    Israel has repeatedly sent clear notes of attention to those attempting to provide Iran’s associates with certain weapons systems. Israel can get in and out from every corner required without that being known. Again. Who knows how we do it….:)
    If they try anything significant both my modest know how on Avionics and weapon systems, including naval and that of my many betters here, will provide for taking care of business.
    I am not happy with the political junk but tools we have the best.

  5. While much attention is being focused on Iran’s nuclear bomb efforts, this is a giant sideshow. Iran will use missiles (and artillery) in Lebanon, Gaza and the “West Bank” to ultimately “carpet bomb” Israel, and particularly the Los Angeles-sized area where three quarters of Israel’s population and industry is located, to dust and ashes. A particular danger of missiles is that until they are launched, from a political and diplomatic point of view,0 it is as if they don’t exist. The 60-100 thousand missiles Hizbollah has in Lebanon are all illegal and there is virtually no discussion of this, and in the Iran nuclear talks Iran’s very formidable missile program, both for herself and for her terrorist proxies is outside the boundaries of discussion. What is most dangerous about the missile strategy is that it is virtually unstoppable until an actual attack is launched. Furthermore, while today the IDF can probably knock out the threat from Lebanon, this will be problematic once Hizbollah, with Iranian assistance, develops a robust anti-aircraft defense. Furthermore, we should assume the Iranians have this figured out and therefore will not launch an all out attack until Hizbollah’s air defense systems are greatly improved.

    Defending against the missile/artillery threat will be very costly and therefore Israel needs all the revenues she can get. The very last thing Israel can afford to do is to sacrifice the economic and political bounty lying beneath the waters of the Mediterranean. Iron Dome is virtually useless. It is Israel’s Maginot Line. Iron Dome was very impressive against the most ineffective weapons an enemy could launch against Iron Dome. In a real war Iron Dome will be undercut by artillery, overwhelmed by numbers and be useless against more accurate and sophisticated missiles that have evasive capabilities and highly reliable targeting mechanisms.

    Furthermore, the Iranians, having more brains in their fingernails than the entire Israeli political, military and intelligence leadership combined, understands that for the missile strategy to have its greatest chance of working, the “West Bank” must effectively be under its control. Retaining Yehuda and Shomron is Israel’s most important national security priority. With Israeli control of Yehuda and Shomron Iran is held in check. Surrendering Yehuda and Shomron means that Iran will be able to execute its missile kill program to destroy Israel. All of the appeasement of Europe will do nothing to dissuade Iran from its missile kill program. It is even doubtful that surrendering the “West Bank” will appease Europe for anything more that a brief moment. Anti-Israel protestors chant ‘From the river to the sea, Palestine will be free.” Any Israeli who doesn’t understand that this is Europe’s true policy as well is delusional.

  6. I am not privy to more than I read on this but changing the rules on foreign investors middle through the game (after they have done the exploration and investment) is not credible.

  7. @ Eric R.:
    I am a Electronics Engineer specialized of military avionics and holder of major Patent rights, one in the chemical field in connection with the change away from using FREON as a cleaning agent. That while I was with Honeywell Defense and in coordination with DUPONT,(details if you want them available).
    Later on my work included a deep connection with laboratory test equipment used in the oil industry. I traveled to take part several times on technology exchanges at PETROTEST in Berlin and IKA in Staufen… And others in France and Spain. Attended to Cannon Instruments as well.
    Noble is entitled to get its dues and so are we.
    We must never bend national economic interests if we do not have to.
    And we must never accept underhanded actions by our government pakidim either.

    🙂

  8. Left wing fucks never stop harming their country in order to gain power. They do it here too. Imagine the global power Israel could have become by being a major energy producer. It figures these malcontents on the left would screw it up. It was all too good to be true. The left here in America is also preventing us from being energy independent. Score one for the muslim jihadists.

  9. @ SHmuel HaLevi 2:

    Well, Shumel, I am a chemical engineer by degree and worked in the field for a number of years – although I left it years ago, so we may have some educational background in common…. 🙂

    Having said that, this is not really a matter of “ripping off” as it is one of “changing the rules in the middle of the game.”

    Israel, it must be remembered, had limited opportunities for drilling, since most companies did not want to upset the Arabs. That is disconcerting, but in a free market, that allowed Noble a bit more leverage in negotiations. The fact is that both Israel and Noble will still make out on this deal — there is almost a trillion cubic meters of gas between Tamar and Leviathan, with a market value of probably US$ 225-250 billion. Israel may get a little less tax revenue than it had hoped for; its natural gas fund may be a little smaller, yet even in the present deal, the benefits – both in economic and political security – far outweigh the drawbacks.

    Israel should just accept this deal. You have several other fields out there – Tanin, Karish, Royee, Shimsohn, and one or two others that could have 7-10 trillion cubic feet – basically another Tamar.

    Let Israel bid those out and leave Leviathan and Noble alone.

  10. @ Eric R.:
    I am totally against ripping off either way. Noble must get its dues in time and in full. We must as well have access to all the operations, transactions, etc.
    I worked for many years in the petroleum industry laboratory level sector. All three Israeli refineries are known to me as are the tests performed regarding shale and natural gas resources here.
    I participated in Germany in technology exchanges with the top of world petroleum people.
    And I find it important that at times we may not agree… 🙂
    Noble did indeed take chances, then again that is the core nature of that industry. Yet, we all knew a decade before that the investors came in that the prospects were very high.

  11. Shmuel,

    We usually agree, but not here. Noble went out on a limb to do this exploration. No, it did not have any Arab/Muslim clients, but they kissed off any chance of ever having any by drilling these fields.

    First, Israel screws them over on the Woodside deal, and now this. Do you think that “other potential partners in the Far East” — you know, like Woodside of Australia, which walked away from a potential deal because of the tax shenanigans of leftists in the Israeli bureaucracy — will want to deal with Israel, when Israel decides to interfere with contracts and tax laws after the fact? This is the type of shenanigans I expect from third world authoritarian dictators, not from a Western country that wants to encourage entrepeneurial capitalism.

    If Nobel walked away at this point, I could not blame them. All so that Livni & Company can try to win an election. Apparently, your left is as bad as our left (the Democrats), who will screw things up economically just to gain votes.

  12. Appropriate name for a bag of hot air.
    We, Israel, are not a sub part of the “Chiquita Banana” plantation.
    The foreign investors, while welcome, shall not rip of the land and or resources. Period.
    The writer floats Argentina as also a representative of nationalized petroleum fields. Obviously he or she does not either want to report facts or is ignorant of those facts.
    The original YPF, Yacimientos Petroliferos Fiscales, Argentina, developed a vast network of oil fields, one in particular located between the Patagonia and the ISLAS MALVINAS.
    The British originally stole the Islands for their strategic location leading to the Antarctic and the Atlantic – Pacific connecting passes.
    After Argentina developed the oil fields in that section of the continental shelf, the usurpers from Albion settled in earnest. The fields to the best of my knowledge have been capped and idle.
    While Argentina has yet to eject the Islands occupiers, I reject the notion of any foreign company or country gaining undue control over our economic exclusion zone.
    Noble must understand that the natural gas belongs to us and the company is entitled to own the rights we decide are appropriate. I believe that Israel has other potential partners in the Far East, should that understanding not be reached with Noble or others.