Five years on, Israelis see few benefits from major gas deal
JERUSALEM (AP) - Five years after Israel signed a landmark deal to develop large offshore gas fields against objections from antitrust authorities, environmentalists and consumer advocates, ordinary Israelis have yet to see the wind blow the government promised.
The deal was limited to the monopoly of Houston-based Noble Energy and Israeli Delek Group, which discovered and developed the fields and cut prices. The country is well on its way to phasing out coal and getting almost all of its electricity from clean gas and solar by 2025, and is exporting gas to neighboring Egypt and Jordan.
The financial benefits, however, are not yet due to Israeli consumers, who continue to pay stubbornly high electricity bills, despite oil and gas prices falling in recent years.
As the search for natural gas creates new alliances and rivalries in the eastern Mediterranean, Israel's experience shows that while major gas discoveries can have geopolitical impact, they do not always deliver the wealth politicians have promised.
The government says the gas reserves have made Israel a regional player and cemented ties with two Arab neighbors. Israel has also teamed up with Cyprus and Greece on a proposed $ 6 billion pipeline to Europe to strengthen its position and prepare to have rare talks with Lebanon this week over the controversial maritime border.
However, the so-called EastMed pipeline has increased tensions with Turkey and is fraught with political and logistical challenges. It could prove impossible if gas prices remain low and Europe accelerates its transition to renewables.
At the time of the 2015 gas deal, Prime Minister Benjamin Netanyahu pledged "hundreds of millions of shekels for education, welfare, health and for every Israeli citizen," but a hoped-for sovereign wealth fund has yet to come about as revenues were lower than expected.
Israel's oil and gas fee revenues have been around $ 250 million a year as of 2015, less than 1% of the country's most recent state budget of around $ 135 billion.
Prior to the 2015 gas framework agreement, a partnership between Noble and Delek was the main developer of the Tamar field, which went online in 2013, and Leviathan - one of the largest gas fields discovered in the Mediterranean - which went online last year.
Due to the gas business, they had to sell two smaller fields that were acquired by the Greek company Energean in 2016. Delek has to sell its stake in Tamar next year, and Noble, which was recently acquired by gas giant Chevron, has to reduce its stake.
Energy Secretary Yuval Steinitz, a driving force behind the 2015 deal, said industry restructuring has cut prices on new contracts from more than $ 6 per million UK thermal units to less than $ 4 per mmBTU.
“The reality is very clear. Prices are much lower today than they were before the framework, "he said, anticipating a further drop of up to 25%.
That goes for new contracts, but the price Israeli consumers pay is still largely determined by a contact between Tamar and the state-owned Israel Electric Corporation in 2012, where prices are tied to the US consumer price index and have been steady since 2015 rose to more than USD 6 per mmBTU, even though world market prices have fallen.
Orit Farkash-Hacohen was the head of the Israel Supply Authority at the time the framework was negotiated and was withdrawn after arguing that the pricing mechanism was unfair to consumers. She had proposed tying prices to an international basket instead and pushing Israel to change it under the 2015 agreement.
Israel's antitrust commissioner resigned in protest after arguing that the 2015 deal would not bring competition to the market and thousands took to the streets in demonstrations. Netanyahu was ultimately able to enforce this on the basis of national security considerations.
Farkash-Hacohen supports much of the framework but blames the government for not renegotiating the main contract between the gas companies and the IEC.
"When you are dealing with an electricity monopoly, regulate its prices so that it does not abuse its power," said Farkash-Hacohen, who was recently appointed tourism minister.
"In that sense, it was a missed opportunity that, unfortunately, had an impact on the cost of living for the people of the State of Israel."
Gabriel Mitchell, energy researcher at Israel's Mitvim Institute, says Israelis pay prices "well above those on the international market".
“One of the big problems we're seeing now in 2020, with everything that happened after the coronavirus and with the collapse in global energy prices, is that the average Israeli is between two and three times the amount for a unit of pays energy than is available in the world market, "he said.
He and other critics point to the IEC's recent purchase of liquefied natural gas on the international market at a lower price than Israel's own fields.
The U.S. Henry Hub Price, viewed as the international benchmark for natural gas purchases, averaged $ 2.75 per mmBTU over the past five years and fell below $ 2 after the pandemic caused a worldwide decline in demand.
The price of Tamar gas has risen steadily over the same period, and Israelis' electricity bills have barely changed since 2015. The tariffs are around 14 cents per kilowatt hour.
When asked about the high prices enshrined in the Tamar contract, Chevron, who completed the Noble acquisition last Monday, said he "firmly believes in the sanctity of contracts."
"These are very early days and as we continue to build relationships with all of our stakeholders in Israel, we are confident that Chevron is committed to building trustworthy and mutually beneficial relationships," said a statement.
The Israeli government says switching from coal to natural gas was good for the environment. Natural gas burns cleaner than coal or oil, reducing air pollution. However, according to the Union of Concerned Scientists, drilling and transporting natural gas results in the leakage of methane, which has 86 times the global warming potential of carbon dioxide over a 20 year period.
In January, Israel began exporting gas to Egypt under a 10-year contract valued at $ 15 billion. In 2016, Noble and Delek entered into a $ 10 billion agreement to export gas to Jordan over a 15-year period.
Israel's excess gas revenues should go to a sovereign wealth fund for overseas investment, a route to riches used by other large exporters. The fund was scheduled to launch in 2018 but has not yet reached the 1 billion shekels ($ 290 million) required to start the investment.
The authorities hope to be able to launch the fund next year. This is also when Delek will sell its stake in Tamar and the IEC will be able to renegotiate its costly Tamar contract. That should bring prices down, but Farkash-Hacohen says it should have happened much sooner.
"Why did you get full price immunity and, second, such a long period of time to sell your property?" She said.
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