Israel's High Court Strikes Down Government Natural Gas Plan (1)

Israel’s High Court struck down the government’s controversial proposal to regulate the natural gas industry, blocking its plan to develop the country’s largest field.

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 court ruling blocks export contracts and development of the offshore Leviathan field.

Energy Minister Yuval Steinitz called it a “wretched” decision whose implications for the economy are liable to be irreversible. Noam Pincu, an analyst at Psagot Investment House Ltd., called it “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.”

Shares of Delek Drilling LP fell 2.4 percent Sunday to ILS 1,152 before the court ruling was announced. The shares have declined 22 percent over the past year.

Override

Critics say the government’s plan entrenches a gas monopoly and will increase prices for Israeli consumers. Prime Minister Benjamin Netanyahu, who led a political and legal maneuver to override objections from the country’s antitrust commissioner, made an unprecedented appearance before the court in February to urge it to approve the Regulation , maintaining it promoted national security.

The court didn’t object to the national security argument, which allowed Netanyahu to circumvent the antitrust authority.

The gas discovered over the past six years 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 failure to approve a gas strategy more than six years after Israel first discovered sizable offshore reserves had held up development, complicated export deals and antagonized investors.

The developers have signed deals to export fuel to neighboring Jordan, and are 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.

(Updates with government, analyst comment from fourth paragraph.)

To contact the reporters on this story: David Wainer in Tel Aviv at dwainer3@bloomberg.net, Sharon Wrobel in Tel Aviv at swrobel4@bloomberg.net. To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Amy Teibel, Michael S. Arnold

By: David Wainer and Sharon Wrobel

©2016 Bloomberg News