The israeli natural gas industry_ where do we go now_

After years of deliberations, negotiations and amendments, the Israeli government recently adopted its final framework for the regulation of the burgeoning natural gas sector.

This exciting development is a reflection of the country’s vibrant democracy, strong rule of law, and climate of regulatory certainty; it will hopefully foster geopolitical stability in the eastern Mediterranean basin, and will potentially promote economic co-development projects and unprecedented investment opportunities in the region.

However, over the course of the last seven years several major natural gas reservoirs have been discovered in the country’s Exclusive Economic Zone (EEZ) placing Israel on the map for the first time with respect to natural resource opportunities.

Israel’s four largest natural gas fields have largely been held by two parties – Noble Energy and the Delek Group – while the exploration efforts of other right holders have mostly proved unsuccessful.

As of June 2016, Delek and Noble together control 85 per cent of the Leviathan field, 67.25 per cent of the Tamar field, and 100 per cent of both the Karish and Tanin fields.

The Tamar field, estimated at containing 10 trillion cubic feet (Tcf) of gas, was first discovered in 2009 and became operational in April 2013: it now generates more than half of Israel’s domestic electricity production.

The Leviathan field (estimated at 22 Tcf) was discovered in 2010 and production has not yet commenced. Gas laws worksheet answers and work Tanin and Karish are much smaller fields which similarly have not yet been developed to production stage.

In December 2014, Israel’s then Antitrust Commissioner announced his decision to break-up the Noble-Delek dominant position in this sector by cancelling a previous arrangement proposed by the Commissioner.

This would have allowed the companies to retain their respective stakes in Leviathan and Tamar on the condition that they sell their shares in the smaller Tanin and Karish fields.

This decision resulted in an immediate halt in the development of Leviathan and triggered an intense deliberation process by the Israeli government, involving negotiations with Noble and Delek.

The aim of such negotiations was to adopt a long-term comprehensive arrangement which would enable the development of Israeli gas reservoirs on the one hand, while affording solutions to the natural concerns of exploitation of a monopolistic position.

This process took place during the entire year 2015 and involved public and parliamentary hearings and heated debate among the Israeli public.

Finally, on 17 December 2015, the Israeli Government approved the ‘Natural gas framework’, which constitutes a comprehensive regulation of this issue.

• Mandatory sale – Noble and Delek must sell all their rights in the small fields Tanin and Karish within a specified 14-month timeframe. Electricity towers health risks The Delek Group must sell all of its rights in the Tamar field and Noble Energy must sell at least 11 per cent of its rights (limiting its maximum holdings in Tamar to 25 per cent) by December 2021. Wikipedia electricity consumption The buyers of these holdings must be unrelated third parties, who shall be approved by the Petroleum Commissioner in consultation with the Antitrust Commissioner.

• Development and local purchase commitments – the Leviathan leaseholders must purchase at least US$1.5 billion in services and equipment for the Leviathan field’s development by the end of 2017 and the Tamar and Leviathan leaseholders must invest at least US$500 million over eight years in pertinent Israeli goods and services, R&D, personnel, and professional training.

• Protections to customers – the Antitrust Commissioner conditioned his approval of a series of nine long-term agreements for the sale of gas from the Tamar field upon the granting of a two-year “window of opportunity” (anticipated during 2020-22, but subject to change) for customers to reduce the quantities which are committed to be purchased under the current “take or pay” purchase agreements by up to 50 per cent. Electricity use in the us In addition, with respect to these long-term agreements as well as nine additional short-term agreements, customers will be permitted to re-sell 15 per cent of their contractually purchased quantity in secondary sales without pricing restrictions. E85 gas stations in houston Future purchasers will enjoy additional protections relating to pricing.

• Export and tax – the framework reinstates, with some modifications, a former government resolution regarding export restrictions which determines that a certain predetermined quantity of gas should be reserved for the local market. Gas unlimited It also clarifies various points relating to the special taxation regime applicable for the sale of natural resources.

• Stability clause – this integral provision requires the government to guarantee regulatory stability for ten years. Electricity generation capacity This clause in its original version would change the main parameters of the framework, and current regulations are required the government to oppose similar private legislation. Electricity sources usa These undertakings are conditional upon compliance by the leaseholders with their respective commitments under the Framework.

Fuelled by heated public discourse questioning the government’s policy considerations, a number of interested and political groups challenged the framework before the Supreme Court of Israel in its capacity as the High Court of Justice.

The appeal hinged on the legality of the government to adopt this type of legislative-like agenda not by way of primary legislation of the Knesset (the Israeli parliament).

Rather, the new clause provides that the government will carefully consider future regulatory changes which relate to the ‘government take’ from the leaseholders’ profits and other matters dealt with in the framework when such changes could have a material adverse effect (in the eyes of a reasonable investor) on the leaseholders.

In the event of a material change of this kind, the government will undergo an evaluation process which will explore and form solutions in order to sustain the economic viability of the projects.

Such evaluation process must be concluded during a fixed and relatively short timetable and will take into account, inter alia, conformity with OECD and other worldwide standards, the amounts already invested in the projects, as well as the existence of approved export agreements.

As in the previous version of the clause, these governmental undertakings are conditional upon compliance by the leaseholders with the provisions of the framework.

This improved framework has thus far gone unchallenged, although it cannot be ruled out that additional petitions will be submitted to the court.

The High Court of Justice’s opinion outlines a clear separation of powers between Israel’s executive and legislative branches, effectuating political, legal, and regulatory certainty – imperative for direct foreign investment.

From an investment perspective, it is the hope that the framework will serve as a stimulus in expediting the development of Israel’s natural gas reserves and for promoting trade agreements with neighbouring eastern Mediterranean countries.

By way of example, it was reported that Leviathan partners and British Gas were close to signing a US$30 billion deal to supply 3.7 Tcf of gas over 15 years to British Gas’s liquefaction facility in Idku, Egypt.

It has also been reported in the media that Israel and Turkey are coming closer to a gas deal as well including the possibility of a pipeline through Turkey.

While relations between the two states have been shaky as of late, a trade agreement would advance the rapprochement that interests both sides.

Additionally, in February 2016, it was reported that the Tamar partners signed a letter of intent with private customers in Jordan to supply 0.06 Tcf over 10 years.

Lastly, in April 2016, it was announced that the Palestinian Investment Fund received a provisional permit and would soon publish tenders for building a US$600 million power station to be supplied with natural gas from the Leviathan field.

The framework is already spawning a boom in discussions on foreign investment in Israel. La gasolina cancion Under the framework, the Leviathan field will need to be developed rapidly requiring the infusion of billions of dollars most of which will likely be funded by sources from outside of Israel.

Moreover, it was announced recently by the Israeli government that there will be a new round of exploratory permits to be granted by the Israeli government (likely in the autumn) as the country’s Exclusive Economic Zone (EEZ) continues to prove fertile.

For example, this past January it was reported that the partners in the Daniel gas field off the coast of Ashdod and near the Gaza Strip, have a geological report estimating such field to hold 8.9 Tcf of natural gas.

There is optimism that the major regulatory hurdles have now been overcome so that Israel can finally find its place as a global energy provider as well as a home base for safe investment opportunities.