Will Israelis pay the price for a natural gas ‘monopoly’?

Israeli consumers are no strangers to high prices.
July 1, 2015

Israeli consumers are no strangers to high prices.

Basic household goods such as food and toiletries cost more in Israel than in all but two countries in Europe, a recent Nielsen research study found. Israeli real estate prices are up nearly 60 percent since 2008. Tel Aviv is the world’s third-most expensive city in which to buy beer, and furniture prices at IKEA Israel are more than double those at IKEA Norway, recent surveys have shown.

Now Israeli consumers are worried about high natural gas prices.

At issue is a deal on which the Knesset is preparing to vote that would give a partnership between two companies — Texas-based Noble Energy and Israel’s Delek Group — control over developing the two largest gas fields discovered in recent years off Israel’s Mediterranean coast.

Given the significant consequences energy prices have on the rest of the economy, each side of the debate is arguing that at stake is nothing less than the health of the Israeli economy and the welfare of Israeli consumers.

Last week, a government committee approved a plan to give the Noble-Delek partnership the green light, and on June 28, Israel’s Security Cabinet cited national security concerns in overriding a warning last December by the nation’s anti-trust regulator that the Noble-Delek deal constituted an effective monopoly. Proponents, including the prime minister, say that the deal is the best way to efficiently develop the gas fields and that controls will be put in place to protect Israeli consumers.

“We are promoting a realistic solution that will bring natural gas to the Israeli market and not a populist solution that will leave the gas in the depths of the earth,” Prime Minister Benjamin Netanyahu said last week.

Opponents, including the Zionist Union and Yesh Atid parties, say that without competition the Noble-Delek endeavor will harm the Israeli economy, and that the government must offer more details about the safeguards it will put in place to protect Israeli consumers.

“Yesh Atid will not support a plan that does not contain a monitoring mechanism for gas prices,” party Chairman Yair Lapid said on June 27. “It cannot be done in the shadows, it must be transparent.”

One of the fields at issue, called Tamar, thought to hold 10 trillion cubic feet of natural gas, began production in 2013. The other, Leviathan, is the world’s largest offshore natural gas discovery of the past decade at 22 trillion cubic feet; it is expected to come online in another three years.

Together, the two fields will turn Israel into an energy exporter, and export deals backed by the U.S. State Department already have been signed with Egypt, Jordan and the Palestinian Authority. Noble and Delek also hold stakes in two smaller gas discoveries, the Tanin and Karish fields, which together hold about 3 trillion cubic feet.

The whole enterprise was thrown into jeopardy last December after the warning by the anti-trust authority that the Noble-Delek deal constituted a cartel that could undermine competition and put Israeli consumers at the companies’ mercy.

Noble Energy responded by halting investments in Israel and threatening legal action, jeopardizing speedy development of the Leviathan field. Netanyahu quickly signaled that he would try to speed up approval of the deal, prompting the anti-trust regulator to announce in February that he would resign in protest, effective in August.

On June 27, hundreds of Israelis took to the streets in Tel Aviv to protest the deal, whose precise details are still being negotiated as the Israeli government considers what restrictions it will impose.

Looming behind the public concern about the Noble-Delek partnership is deep frustration about what many Israelis say is the cartelization of the Israeli economy. They blame a small group of wealthy Israeli families that dominates large swaths of the economy for the high prices they pay on everything from clothing to bank fees.

The gas deal, many Israelis worry, will hand yet another victory to a cartel and come at the expense of ordinary Israelis.

“Only now is the magnitude of the monopolies beginning to be understood in Israel,” said Idan Leibs, a researcher at the University of Haifa’s Natural Resources and Environmental Research Center. “Between the state, the energy companies and the citizens, the people are the weakest party here. They are supposed to benefit from the gas revenues, but they also have the incentive of having cheaper gas prices. The price of gas has an impact on the entire economy.”

Netanyahu’s economic record includes deregulation and privatization.

On Tuesday, the Netanyahu government presented new details about how Israel would mitigate the Noble-Delek partnership’s control over the natural gas market. According to an outline provided by Energy Minister Yuval Steinitz and published in Haaretz, the Noble-Delek partnership would sell its stakes in the smaller Karish and Tanin gas fields within 14 months and reduce its holdings within six years in the Tamar gas field, but would retain much of its control over the development of Leviathan. The price of gas in Israel would be capped only temporarily.

The government’s proposal “is difficult for the companies because it places three restrictions upon them that are not there in any OECD country: an export restriction, price restriction and ownership restriction,” Steinitz said, using the acronym for the Organization for Economic Cooperation and Development.

Netanyahu said the deal would speed up development of the Leviathan field and benefit the Israeli economy.

Did you enjoy this article?
You'll love our roundtable.

Editor's Picks

Latest Articles

Print Issue: Breaking Barriers | May 17, 2024

In their new book, “Uncomfortable Conversations with a Jew,” Emmanuel Acho and Noa Tishby bring their vastly different perspectives to examine the complex subject of antisemitism in America today.

More news and opinions than at a
Shabbat dinner, right in your inbox.

More news and opinions than at a Shabbat dinner, right in your inbox.

More news and opinions than at a Shabbat dinner, right in your inbox.