Antitrust Case Complicates Israel’s Energy Future

Antitrust Case Complicates Israel’s Energy Future

February 27, 2015
Antitrust Case Complicates Israel’s Energy Future
Background: Natural Gas Development,
A Big Change for Israel
Figure 2. Natural Gas Supplies and Consumption
In 2009 and 2010, U.S.-based exploration and production
2005-2013
(E&P) company Noble Energy (see below for brief
description), along with its private Israel-based partners,
made two large natural gas discoveries offshore of Israel—
the Tamar and Leviathan fields, respectively. Israel does
not have a significant E&P sector and thus relies on the
expertise of international companies, particularly in
offshore work. These discoveries, and the production from
Tamar that began in 2013, have changed Israel’s energy
consumption mix, strengthened its energy security, lowered
its carbon emissions, and led to trade benefits.
Figure 1. Israel’s Primary Energy Fuels 2013

Source: Cedigaz statistical database.
(Change from 2012)
Notes: Units = billion cubic meters per year (bcm). Israel does not
export natural gas at this time.
Recent Activities
Recent U.S. Legislation Encouraging U.S.-Israel
Energy Cooperation
On December 19, 2014, President Obama signed into law
the United States-Israel Strategic Partnership Act of 2014
(P.L. 113-296), which among other things, stated, “...United
States-Israel energy cooperation and the development of
natural resources by Israel are in the strategic interest of the

United States.” It goes on to say, “...the United States and
Source: BP Statistical Review of World Energy, 2014.
Israel have a shared interest in addressing immediate near-
Notes: The percentage figures in parentheses represent changes
term, and long-term energy, energy poverty, energy
between 2012 and 2013. In 2013, Israel’s total primary energy
independence, and environmental challenges facing the
consumption was 24.2 million tonnes of oil equivalent (mtoe),
United States and Israel, respectively.”
compared with 24.8 mtoe in 2012.
Both the United States and Israel, albeit on a different scale,
The rise in natural gas production from Tamar has mostly
have undergone major transformations in their energy
been consumed by Israel’s electric power sector, replacing
sectors. The new law (in Section 12) highlights these
both oil-based and coal-based generation. Israel’s natural
changes and encourages closer ties in the energy sector
gas consumption reached a new peak in 2013, 5.10 billion
between the two countries. Energy production, particularly
cubic meters (bcm), an almost 40% increase over its
of natural gas, has increased tremendously in both
previous high in 2010. Unlike 2010 when most of Israel’s
countries, prompting the possibility of exports. Domestic
natural gas was imported, consumption in 2013 was mostly
use of natural gas is also on the rise in both countries.
from domestic production (89%). These changes have
decreased Israel’s reliance on energy imports, while curbing
Antitrust Dispute
its emissions.
An antitrust dispute has disrupted plans for production of
the Leviathan field. Israel’s Antitrust Authority, an
Noble Energy is a U.S.-based (Houston, TX)
independent regulatory body, announced in December 2014
independent oil and natural gas exploration and
that a consent decree for the development of Leviathan
production company. Noble Energy has production
would not be approved—despite previous indications that it
assets in the United States, Cameroon, Cyprus, and
would—because of concerns regarding monopolistic effects
Equatorial Guinea, in addition to Israel. Production
on Israel’s energy market. Israel’s government has
from Israel comprises a minority portion, less than
established a committee in hopes of resolving the dispute.
25%, of the company’s total 2014 production.
In February 2015, the committee proposed a multifaceted
solution that would allow Noble Energy and one of its
Israel-based partners, Delek Group, to maintain their stakes
in Leviathan if Delek completely divested from Tamar and
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Antitrust Case Complicates Israel’s Energy Future
Noble Energy sold part of its Tamar stake. Israeli officials
June 2012 visit to Israel, energy industry press reported that
may seek to have Noble Energy maintain a prominent role
one of the topics discussed with Prime Minister Netanyahu
in projects linked with export deals involving Arab
was Israel’s natural gas development plans. Russia has
countries, partly due to Israel’s dependence on international
expressed interest in developing other natural gas resources
E&P expertise, and partly due to calculations that the U.S.-
in the region, including offshore Cyprus and the Gaza Strip.
based company’s role might make the deals less vulnerable
However, given the financial challenges Russia is
to anti-Israel populist sentiment.
shouldering related to its geopolitical struggles, Western
sanctions, and global oil prices, Gazprom’s acquisition
Both Noble Energy and Delek have so far rejected the
capabilities may be significantly limited at the moment.
government’s proposal, and the timing and nature of an
ultimate resolution remain unclear. The Antitrust Authority
Regional Dynamics
has delayed its decision to bring restraint of trade charges
There are various export destinations for Israeli natural gas
until April 23 (a month after Israel’s March elections).
via pipeline. However, questions exist regarding Israel’s
ability to create and sustain energy ties with Arab and other
According to Israel’s Restrictive Trade Practices (RTP)
Muslim-majority neighbors whose relations with Israel are
Law of 1988, “The Minister [of Economy] may, following
marked by ongoing or intermittent political disputes, and/or
consultation with the Knesset’s Economic Affairs
sensitivities based on strong, long-standing anti-Israel
Committee, exempt a restrictive trade practice from all or
public sentiment. It is unclear to what extent political
some of the provisions of this Law, if he believes that such
difficulties with neighbors might be mitigated by the
action is necessary for reasons of foreign policy or national
potential material benefits of energy cooperation or by other
security.” However, the RTP was amended on November
considerations, and how satisfactory logistical and
17, 2014, to authorize the Restrictive Business Practices
transportation frameworks and security measures might be
Court “to force a monopoly or a member of a concentration
implemented. In addition to these overarching issues, the
group whose practices have been found to cause or to
most-discussed potential export routes and destinations are
constitute a threat to business competition or the public to
described below, though these may be contingent on the
sell its assets.”
outcome of the ongoing antitrust matter:
Ramifications for Israel’s Energy Security  West Bank and Gaza: The Palestinian Authority and
The change of course by Israel’s Antitrust Authority further
the Leviathan consortium led by Noble Energy reached
clouds the already uncertain regulatory regime governing
agreement in January 2014 on a 20-year supply of gas.
Israel’s energy industry. International energy companies

have previously expressed concerns about Israel’s
Jordan: The Leviathan consortium signed a preliminary
agreement in September 2014 to supply gas to Jordan’s
regulatory regime, particularly regarding domestic
national power company, after the Tamar consortium
consumption quotas. In addition, possible price ceilings
reached agreement with Jordan in February 2014 to
may inhibit future development. In May 2014, Woodside
supply gas to Jordanian potash and bromine factories.
Petroleum, an Australian company with specialized
expertise in liquefied natural gas (LNG), opted not to join
 Egypt: The Tamar consortium signed a letter of intent
the venture to develop the Leviathan field. Noble Energy
in October 2014 to provide gas to private Egyptian
and its partners plan to make a final investment decision on
industrial users as early as 2015 through the pipeline
the Leviathan field in 2015. If Noble Energy’s role in the
that provided gas to Israel from Egypt. In 2014 press
development of Israel’s natural gas fields is significantly
reported that the Tamar and Leviathan consortiums
downscaled, it is unclear to what extent other international
signed separate tentative agreements to supply gas to
companies with similar expertise would step in, given the
Egypt’s underused LNG export terminals for export.
regulatory environment and the ongoing antitrust matter.
 Cyprus: Noble Energy’s discovery of the Aphrodite
Israeli officials routinely express optimism that the
economic promise of Israel’s energy resources will attract
Field offshore Cyprus in 2011 prompted Israel and
the industrial help it needs. However, Israel’s dependence
Cyprus to discuss joint development of their resources.
on non-Israeli companies to develop these resources,
 Turkey: Israel-Turkey relations continue to face
especially offshore, complicates its efforts to balance
difficulties, which present obstacles to an energy deal.
economic, environmental, and security considerations.
 Greece: There have been discussions between Cyprus,
Israel, and Greece to transport natural gas to Greece for
One international company that likely would be interested
in participating in Israel’s natural gas development is
export into Europe. This scenario is not likely given
Russia’s national gas company, Gazprom.
technical and political hurdles.
A motivation for
a Gazprom acquisition would be to influence which market
Michael Ratner, Specialist in Energy Policy
the Israeli natural gas gets exported to, if exports come to
fruition. It has long been Russia’s strategy to maintain its
Jim Zanotti, Specialist in Middle Eastern Affairs
European market share by thwarting, acquiring, co-opting,
IF10140
or otherwise affecting projects that may send new natural
gas resources to Europe. During Russian President Putin’s

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Antitrust Case Complicates Israel’s Energy Future

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