Israel’s High Court struck down the government’s controversial proposal to regulate the natural gas industry, in a dramatic ruling that blocked plans to develop the country’s largest field and conclude export deals.
In a summary of its decision, the court said it objected to the so-called stability clause that would have prevented major regulatory changes for 10 years, inserted to encourage investment. It gave the government a year to revise its plan.
Israel’s offshore gas fields are held by a small number of companies headed by Texas-based Noble Energy Inc. and Israel’s Delek Group Ltd. The government’s failure to craft an approved regulatory framework for the industry since the fields were discovered six years ago has held up development of the largest reserve, Leviathan, while complicating export deals and antagonizing investors.
Prime Minister Benjamin Netanyahu decried what he called a “grave threat” to the development of Israel’s gas reserves. “We will look for other ways to overcome the severe damage this ruling has done to Israel’s economy,” he said, adding that the court would be perceived as overstepping its bounds.
Energy Minister Yuval Steinitz called it a “wretched decision” that “will have negative repercussions on the development of the energy industry, on our energy security, and on Israel’s economy.”
Before crude oil prices tumbled, dragging down gas prices, Noble estimated government revenue and royalties from Leviathan exports at more than $20 billion over a decade.
The Leviathan partners said in a statement that they would work with the government “to swiftly create conditions for stability” that will allow the field to be developed by the end of 2019, in line with the current timetable. Shares in Delek Drilling LP fell 2.4 percent Sunday to ILS 1,152 before the ruling was announced. The shares have declined 22 percent over the past year.
Noam Pincu, an analyst at Psagot Investment House Ltd., called the court’s decision “terrible news for the gas industry.”
“The bottom line is the development of Leviathan is delayed,” Pincu said. “The stability clause was very significant. Companies had signaled they wouldn’t invest without some kind of outlook for the future.”
The regulatory uncertainty has made it harder for the companies to secure financing at a time when energy prices have tumbled. Noble is the only international company operating in Israel, after Woodside Petroleum Ltd. pulled out of negotiations in 2014.
Opposition to the plan has been fierce, prompting Antitrust Commissioner David Gilo to resign in protest in May and drawing thousands to protests. Critics say the government’s plan entrenches a gas monopoly and will increase prices for Israeli consumers.
Lawmaker Shelly Yachimovich of the opposition Zionist Union bloc hailed the court’s decision as a “huge victory for the thousands of activists who refused to be silenced.” The government’s proposal “carved out a separate territory for the gas companies with its own rules and immunity,” she added in a Facebook post.
Netanyahu, who led political and legal maneuvers to override the commissioner’s objections, made an unprecedented appearance before the court in February to urge it to approve the regulation. He said failure to approve the plan would frighten away foreign investors, and maintained the program promoted national security.
The court didn’t object to the national security argument, in effect allowing Netanyahu to circumvent the antitrust authority. Netanyahu has said energy self-sufficiency means less international interference and makes Israel less vulnerable to boycotts.
The natural gas discovered off Israel’s Mediterranean coast is sufficient to meet the country’s energy’s needs for decades, with surplus for export, developers say. The Tamar field holds about 10.8 trillion cubic feet of gas and Leviathan about twice that amount.
The developers have signed deals to export fuel to neighboring Jordan, and have been in negotiations to ship fuel to Egyptian plants where it would be converted to liquid natural gas for possible export to Europe.
The Leviathan partners agreed last November to enter non- binding negotiations with Dolphinus Holdings Ltd. in Egypt to supply as much as 4 billion cubic meters of natural gas annually for 10 to 15 years. Dolphinus is a consortium of large, non- governmental gas consumers and distributors headed by Egyptian businessman Alaa Arafa.
The partners have also been negotiating to export about 10 billion cubic meters a year to Turkey, which would be worth about $2 billion a year, people familiar with the matter told Bloomberg earlier this month.
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