Companies warn of delays to giant Israel gas field after court rejects guarantee

TEL AVIV - Reuters

An Israeli supreme court ruling barring the government from giving a 10-year guarantee to an American energy firm and its Israeli partner could delay Israel’s emergence as a major regional natural gas exporter, the companies said on March 28.

Israel is hoping that the huge Leviathan natural gas field off its shores in the Mediterranean will come on line by 2019, allowing it to sell energy to Egypt, Jordan, Turkey or beyond and transforming its relations with Middle East neighbors.

But the Supreme Court caused a hiccup late on March 27 with a ruling that invalidated a guarantee clause in a deal reached last year between Prime Minister Benjamin Netanyahu and the consortium of Texas-based Noble Energy and Israeli partner Delek Group.

The judges said the government is not in the position to make such a long-term concession and gave the sides a year to come up with an alternative arrangement for the government to provide stability assurances.

Noble called the court’s decision “disappointing” and said it risked causing a delay in the $5 billion-$6 billion project to develop the 22 trillion-cubic-foot gas field.

“Development of a project of this magnitude, where large investments are to be made over multiple years, requires Israel to provide a stable investment climate,” Noble CEO David Stover said in a statement. “We will vigorously defend our rights related to our assets to protect shareholder value.”

“It is now up to the government of Israel to deliver a solution which at least meets the terms of the framework, and to do so quickly,” he said.

Yossi Abu, chief executive of Delek’s subsidiaries Delek Drilling and Avner Oil, said the companies would work with the government to find an alternative to the stability clause, and push ahead with development plans in the hope of avoiding delays.

“We are focusing on finding a solution in order to maintain the timetable that we put forward,” Abu told Reuters, adding that he hoped the decision would not hurt export opportunities.

The companies hope to finalize long-term export deals with a Royal Dutch Shell plant in Egypt, Jordan’s national electricity company and the Palestinian Authority. Exports to Turkey remain an option as well.

Noble and Delek are already producing gas for domestic consumption from Tamar, a smaller field nearby.

With nearly all of Israel’s proven gas deposits in the hands of Noble and Delek, opposition lawmakers and public advocacy groups have taken to the streets to protest against what they consider a gas monopoly that will hurt consumers.

Netanyahu argues that the proposed outline, which leaves Noble and Delek in control of Leviathan while forcing them to sell smaller, yet sizeable, assets, will bring new competition.

Italy’s Edison has expressed interest in these smaller reserves but has held back due to regulatory uncertainty.

“The government is exploring its options to figure out how to move forward,” said a government official in the energy sector who asked not to be identified.

 “There is no specific direction at the moment.”