Israel’s High Court blocked the government’s controversial proposal to regulate the natural gas industry, in a dramatic ruling that complicates plans to develop the country’s largest field and conclude export deals.
The court said late Sunday that it objected to the so-called stability clause that would have prevented major regulatory changes for 10 years, inserted to encourage investment. It gave the government, which denounced the ruling, a year to revise its plan. The TA-Oil & Gas Index fell 5.9 percent on Monday, the most in nearly seven months, to 844.69 at 10:13 a.m. in Tel Aviv.
The government’s failure to craft an approved regulatory framework for the industry since the fields were discovered six years ago has held up development of the largest reserve, Leviathan, impeding export deals and antagonizing investors. Israel’s offshore gas fields are held by a small number of companies headed by Texas-based Noble Energy Inc. and Israel’s Delek Group Ltd.
The court’s decision was “disappointing,” and Noble will “vigorously defend its rights” related to its assets, Chairman David Stover said in a statement. Noble can sue Israel for damages if the gas plan isn’t approved and Leviathan isn’t developed, analysts have said.
While Stover called the ruling a “risk” to the timetable for developing Leviathan by the end of 2019, the chief executive of Delek Drilling LP of Israel, Yossi Abu, said in a conference call on Monday that the companies would meet the development schedule.
Prime Minister Benjamin Netanyahu decried what he called a “grave threat” to the development of Israel’s gas reserves. “We will look for other ways to overcome the severe damage this ruling has done to Israel’s economy,” he said on Sunday, adding that the court would be perceived as overstepping its bounds.
Before crude oil prices tumbled, dragging down gas prices, Noble estimated government revenue and royalties from Leviathan exports at more than $20 billion over a decade.
Noam Pincu, an analyst at Psagot Investment House Ltd., called the decision “terrible news for the gas industry.”
“The bottom line is the development of Leviathan is delayed,” Pincu said. “The stability clause was very significant. Companies had signaled they wouldn’t invest without some kind of outlook for the future.”
The regulatory uncertainty has made it harder for the companies to secure financing at a time when energy prices have tumbled. Noble is the only international company operating in Israel, after Woodside Petroleum Ltd. pulled out of negotiations in 2014.
Opposition to the plan has been fierce. Antitrust Commissioner David Gilo resigned in protest in May and demonstrations against the program have drawn thousands. Critics say the plan entrenches a gas monopoly and will increase prices for Israeli consumers, and petitioned the court to strike it down.
Lawmaker Shelly Yachimovich of the opposition Zionist Union bloc hailed the ruling as a “huge victory for the thousands of activists who refused to be silenced.”
Netanyahu, who led political and legal maneuvers to override the commissioner’s objections, made an unprecedented appearance before the court in February to urge it to approve the regulation. He warned that failure to approve the plan would frighten away foreign investors, and maintained the program promoted national security.
The court didn’t object to the national security argument, in effect allowing Netanyahu to circumvent the antitrust authority. Netanyahu has said energy self-sufficiency means less international interference and makes Israel less vulnerable to boycotts.
Surplus for Export
The natural gas discovered off Israel’s Mediterranean coast is sufficient to meet the country’s energy’s needs for decades, with surplus for export, developers say. The Tamar field holds about 10.8 trillion cubic feet of gas and Leviathan about twice that amount.
The developers have signed deals to export fuel to neighboring Jordan, and have been in negotiations to ship fuel to Egyptian plants where it would be converted to liquid natural gas for possible export to Europe.
The Leviathan partners agreed in November to enter non-binding negotiations with Dolphinus Holdings Ltd. in Egypt to supply as much as 4 billion cubic meters of natural gas annually for 10 to 15 years. Dolphinus is a consortium of large, non-governmental gas consumers and distributors headed by Egyptian businessman Alaa Arafa.
The partners have also been negotiating to export about 10 billion cubic meters a year to Turkey, which would be worth about $2 billion a year, people familiar with the matter told Bloomberg earlier this month.