Energy Minister Yuval Steinitz held a press conference today (Tuesday) in which he revealed the outline of the gas agreement, the full details of which have been confidential until now. "The agreement is good for the country and bad for the energy companies," he said.
The press conference is taking place against the backdrop of Prime Minister Netanyahu's failure in the Knesset to transfer the powers of Economy Minister Deri to the government on the issue of the gas framework.
""After years of delays resulting from a plethora of regulators, each of whom saw their own angle, I decided immediately upon taking office to invest my efforts in achieving a breakthrough in the outline and putting an end to the delays that harmed the citizens of Israel," Steinitz began his remarks.
""The outline we have arrived at is not only good, it is the best. It will finally, after years of delay, lead to the development of the main gas fields and will hopefully bring more companies to search for gas and oil.".
Steinitz claimed that the agreement is bad for companies, and not as claimed by critics of the outline: "If we are as lenient as they claim, why do companies prefer to drill in Lebanon? The answer is that we are not suckers.".
According to the Globes website, these are the main points of the outline, the rationale behind it, as well as the criticism of it.
• Tamar Reservoir: Delek will sell its holdings in the reservoir (31.25%) to a third player within six years, and Noble will dilute its holdings from 36% to 25%
The rationale: Noble is the "contracting" company and therefore cannot be removed from the database, but it will not be the largest shareholder in the database.
The reviewThis is one of the clauses of their outline that Antitrust Commissioner David Gila opposed the most, because Noble would still have cross-ownership of the large Tamar and Leviathan gas fields, and Delek's exit from Tamar would not lead to true competition - instead of a gas company acquiring Delek's holdings, they would be acquired by a financial entity that would allow for a nice "exit" response.
• Leviathan Reservoir: There will be no structural change in the reservoir. In the near term, Delek and Noble will not compete with each other for the sale of gas to the local market, but the state will be able to demand this ten years after the reservoir is developed.
The rationale: Competition between three players in one database would have hindered the development of the database, because conflicts of interest would have been created. For example, if one company did not sign contracts, what interest would it have in investing in the development of the database? Once the database is developed, this "excuse" would no longer be relevant.
The review: The Giant Whale Reservoir will remain a monopoly, and there will be no competition for the next 15 years.
• Shark and crocodile reservoirs: Noble and Delek will sell their holdings in the reservoirs within 14 months. If they do not do so, the holding will be transferred to a trustee who will sell the reservoirs within four months.
The rationaleThe government hopes that a third player will buy the reservoirs within a few months and sign gas contracts even before their development.
The review: The Karish and Tanin reservoirs are small and cannot truly compete with the large Tamar and Leviathan gas reservoirs. Furthermore, there is no certainty that the reservoirs will be sold in the coming months.
• Advancement of exports from Tamar: The partnerships will be able to export gas to Egypt in commercial quantities even before the Leviathan reservoir is connected to the shore.
The rationale: This clause is intended to allow for the expedited signing of a gas export contract with the Spanish company Union Penosa, whose gas liquefaction facility is located in Damietta, Egypt. Such a contract is expected to bring NIS 3.5-4 billion to the state coffers.
The review: The government previously ruled that the Tamar reservoir would not be able to export gas until Leviathan was connected to shore, to ensure that there would be enough gas for the Israeli economy. Now, advancing exports from Tamar could reduce pressure on Noble to develop Leviathan.
• The partnership in Tamar They will not receive the Sheshinsky tax benefit for building an export pipeline to Egypt (a pipeline from the Tamar production facility to Egypt), but the state will recognize part of an additional pipeline (known as the "third pipeline") that will connect the Tamar wells to the production facility. The partnerships will also be forced to build an additional gas pipeline from the production facility to Ashkelon.
The rationale: Laying an additional pipeline from the Tamar wells to the reservoir's production facility will enable gas exports to Egypt and also increase capacity for the Israeli economy. Furthermore, since the Yam Tethys reservoir can no longer be used for gas storage, an additional pipeline will increase the security of gas supply to the Israeli economy.
The review: Recognition of part of the "third pipeline" will increase Tamar's market share at the expense of the share of the Tanin and Karish reservoirs.
• Delaying the development of Leviathan: The state allows Noble to postpone the development of the reservoir from March 2018 to August 2019.
The rationale: The regulatory problems that have emerged in Israel in recent months have created uncertainty among gas suppliers that has delayed the development of the reservoir, and therefore they are being given an extension.
The review: The delay in the development of Leviathan effectively leaves Israel with one reservoir - Tamar - on which it relies for gas injection. Furthermore, there is no certainty that Leviathan will be developed by the new target date.
• Gas companies will be required to offer their customers the following two options in futures contracts:
- The "Israeli Father" option, in which the base price of gas is the average of gas prices in contracts signed in the previous quarter and the linkage is to the existing basket in the economy. The average base price today is around $5.3 per unit of energy, with linkage to Brent (about 25%), the American price index (about 40%) and the electricity production component of the Electric Company (about 35%).
- The best Brent contract available in the economy, with a floor and ceiling price. Industry sources estimate that the floor and ceiling price in such a contract is $5.2-7 per heat unit.
• respectively According to the Sheshinsky Committee's recommendation, the taxation will be at a price that is not lower than the average gas price in the Israeli economy.
The rationale: The state wants to prevent tax "trickery" by companies and, in effect, tax evasion. Also, the state ensures that customers in Israel will receive a better price for gas than customers abroad.
The review: Due to the differences in the linkage mechanisms between export contracts (the linkage is mainly to the oil price, which changes frequently) and contracts in Israel (the linkage is usually to the American price index and the electricity production component of the Israel Electric Corporation), this requirement may complicate the tax calculations of the Tax Authority.
• The gas companies They will be able to offer new customers in Israel the same terms that were offered in the export contract.
The rationale: This section is actually intended to solve the problem of tax calculations from the previous section, because if the conditions are the same, there is no need to calculate the price differences between the export contracts and the contracts with customers in Israel.
Prime Minister: I will not give in to populism
Prime Minister Netanyahu today addressed the gas outline: "Today, after years of discussions, we are presenting the detailed outline we have formulated regarding the issue of removing gas from the water. It will be presented to all citizens of Israel, to the entire world. This outline dismantles the gas monopoly and will bring hundreds of billions of shekels into the state coffers, for welfare, health, education, and many other needs of the citizens of Israel.".
The Prime Minister promised that the gas would 'come out of the water': "Populism is rising around us. No one has tested this outline in practice and now there will be a possibility to do so. I have never succumbed to populism. I have made many reforms that saved the Israeli economy in the face of fierce opposition, and today, in the perspective of 10 years, 15 years, we can judge how the Israeli economy has soared, and other economies that did not make these reforms and did not act as we acted and succumbed to populism - how they have been undermined, some of them on the verge of collapse, and I can also say that in some of them the gas remains underground. This must not happen here. I trust in the common sense of the citizens of Israel and I expect responsibility from the representatives of the public. We will do everything to get the gas out of the water.".
Knesset Economics Committee Chairman Eitan Cabel said today: "In the coming days, I will actually convene the Knesset Economics Committee for a first discussion of the proposed outline, with the Prime Minister, the Minister of Energy and Yitzhak Tshuva being the first to present their position to the committee.".
Minister Aryeh Deri was addressed a call from the Shas Civil Council, demanding that he insist on changes to the emerging outline: "The outline outlined by the Prime Minister is a cry for generations and a plan that will harm first and foremost the poor and the disadvantaged. We call on you to unequivocally demand that the gas profits be transferred to a special fund whose goals will be to reduce gaps and invest in the periphery, and to insist on a fair price (between 2.5 - 4 $), which will benefit the public and future generations.".
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