The inter-ministerial committee charged with recommending Israel’s national gas policy released its final report last week. We believe the committee’s recommendations reflect a welcome development: the government’s renewed commitment to attracting foreign investment into the Israeli exploration, development and production market.
The Zemach Committee (led by Shaul Zemach, the director general of the Ministry of Energy and Water) had 11 senior representatives of various government ministries and other bodies. It conducted its work over almost one year, having been set up by the prime minister and the minister of energy and water in October 2011.
The Committee’s final report notes that it studied international best practices in national gas policies and tried to strike the ideal balance between key competing interests such as preserving energy resources for the local market, encouraging foreign investment and protecting the environment.
Among the central recommendations is a sliding scale of export allowances: gas fields holding 200bn cubic metres (bcm) or more of gas will be required to reserve at least 50 per cent of their gas for the domestic market; those between 100 and 200 bcm to reserve 40 per cent; those between 25 and 100 bcm to reserve 25 per cent; and those with less than 25 bcm would face no export restrictions.
The report also recommends that companies be permitted to trade export credits. The total effect of these recommendations is that 500 bcm or, in other words, over 50 per cent of reserves currently assumed for purposes of policy setting could be sold for export. (These figures are to be reviewed and updated in five years.)
Most importantly, in our view, the final report contains a recommendation that had not been included in the interim report, stipulating that the director general of the Ministry of Energy and Water work directly with foreign oil and gas ‘majors’ to encourage their entry into the Israeli market.
Notably, the report calls for government support to build basic infrastructure for the sector. While it favours establishing LNG facilities within Israel, it also leaves open the option of constructing an LNG facility in Cyprus or other neighbouring countries – a scenario that has been under open consideration by some of the leading local players.
While outside investors will need to carefully consider a host of outstanding regulatory issues, in our view, the report reflects a measured, generally pro-investment approach taken by increasingly sophisticated local regulators. In concert with local lawyers focused on Israeli energy law, with whom we regularly work, we would be happy to discuss with you potential opportunities in the Israeli market.