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Synergy Israeli Media Clips 5/20/15
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Sheshinski: Breaking Up Gas Monopoly Won't Lower Prices
May 19, 2015 | Globes (English)
By Hedy Cohen
Energy Minister Yuval Steinitz's new advisor also opposes price controls, saying the current price is reasonable. -
Thanks to Sheshiski
May 19, 2015 | Globes (Hebrew)
By Amiram Barkat
No-one in government will admit or confirm it, but the Sheshinski Committee was the best thing to happen to gas entrepreneurs. Yup, that same Professor Eitan Sheshinski, hated by investors and the target of a vicious, nameless campaign of demonization. -
Delek Drilling, Avner Report Higher Profit
May 19, 2015 | Globes (English)
By Hedy Cohen
Delek Group's energy production units reported higher revenue and lower costs in the first quarter.
Israeli Press
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Sheshinski: Breaking Up Gas Monopoly Won't Lower Prices
May 19, 2015 | Globes (English)
By Hedy Cohen
Avoidance of price controls, increasing gas export quotas, and linking the gas price to a weighted average in various countries are some of the proposals made by Prof. Eitan Sheshinski to incoming Minister of National Infrastructures, Energy, and Water Resources Yuval Steinitz. They met yesterday, and Steinitz asked Sheshinski to advise him on energy-related matters. Sheshinski answered that he would be glad to volunteer his help.
Sheshinski, who is very experienced in natural resources and energy, headed a committee appointed by then-Minister of Finance Steinitz in 2010 for considering fiscal policy on oil and gas resources in Israel, among other things. The committee considered the tax rates to be applied to oil and natural gas production in Israel, and recommended an increase in the tax on gas discoveries from 33% to 64%, almost double.
The gas companies, however, might actually welcome Sheshinski's appointment as an advisor. Last December, two days before Antitrust Authority director general Prof. David Gilo's dramatic announcement of his intention to liquidate the gas monopoly, thereby revoking the understandings signed with Delek Group Ltd. (TASE: DLEKG) and Noble Energy, "Globes" interviewed Sheshinski, who said that while Gilo's step was justified ("there was never a chance of generating pressure on prices through the sale of the Tanin and Karish reservoirs, and I can therefore understand why the agreement was revoked"), he saw no current problem with gas prices in Israel, because a duopoly in the gas market would not lower prices.
"All in all, today's price is reasonable," Sheshinski said in that interview, "by the standards of Europe, and certainly at the level of the Far East." The price of gas in Europe is $8-10 per energy unit, and is about $15 in the Far East. Delek Drilling Limited Partnership (TASE:DEDR.L) and Avner Oil and Gas LP (TASE: AVNR.L) today reported that the average gas price in Israel in the first quarter of 2015 was $5.45 per energy unit.
Sheshinski also asserted that controls over natural gas prices might do more harm than good. "Controls give a lot of authority to a bureaucratic system, and experience does not justify optimism," he said, adding, "I don't see how the regulator in Israel can adapt himself to the many changes occurring worldwide in gas prices. You have to keep this as far as possible from the bureaucratic and political system."
The Ministry of Finance is interested in soft price controls. Under the compromise plan presented to the gas companies a week ago, the state proposed that the price of gas in future contracts be a weighted average of gas prices in the contracts that have already been signed in Israel.RELATED ARTICLESSheshinski 2 backpedals; Israel Chemicals still unhappyGreens blast Sheshinski 2
As far as liquidating the monopoly itself, Sheshinski said that creating a duopoly in place of the current monopoly was liable to make the consumer worse off, and admitted that there was no perfect solution to the problem of the structure of the gas sector. "Both global experience and economic theory explicitly state that anyone who thinks that a duopoly will cause perfect competition is wrong. In this matter, you also can rely on our experience in Israel," Sheshinski said, adding, "In a duopoly, the controlling shareholders have a common interest… some claim that a duopoly's prices are even worse than those of a monopoly."
At the same time, Sheshinski expressed understanding for concern about future price rises, and argued that a solution for the problem of Israeli gas prices is to establish a mechanism for linkage to the prevailing international price. He believes that the solution must begin from the end, meaning the objective that we want to achieve. "In my opinion, the goal is to ensure that gas prices in Israel are not different from those prevailing in similar countries around the world. A revolution is now taking place in global energy prices. The US is becoming the world's biggest oil producer, and both oil and gas prices are on a downtrend. In my opinion, this trend will continue, and our goal should be not to pay more than the reasonable prices of countries in a similar situation with respect to gas reservoirs."
The Ministry of Finance also believes that the effect of the US Consumer Price Index on the price of gas in Israel should be restricted. While Sheshinski argues that a formula for binding linkage to the gas prices in various countries should be established, however, the state wishes to include linkage to factors such as the global price of oil and Israel Electric Corporation's (IEC) (TASE: ELEC.B22) electricity production component.
Revised thinking
According to Sheshinski, the drop in global oil and gas prices should also lead to revised thinking about matters that have already been discussed, such as export quotas. The Tzemach Committee, founded to assess government policy in the natural gas market, decided that Israel should keep reserves amounting to 450 BCM of gas and export 500 BCM. Following a public outcry, the government decided to intervene, and decided that Israel should keep 540 BCM, while allowing the gas partners to export the rest. The recommendation for the amount of exports was based on a demand forecast that the Israeli economy would consume 501 BCM of gas by 2040, a forecast that has now sunk to below 460 BCM.
Despite the recommendation by the Sheshinski Committee, the gas companies were indifferent to the appointment of its chairman as an advisor to the Minister of National Infrastructures, Energy, and Water Resources, saying that they did not regard him as a threat to them. Sources in the companies said that Sheshinski understood that the most important thing to do is to make sure that the Leviathan and other reservoirs are developed, because that is the only way that the state will see its share of the gas profits.
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May 19, 2015 | Globes (Hebrew)
By Amiram Barkat
No-one in government will admit or confirm it, but the Sheshinski Committee was the best thing to happen to gas entrepreneurs. Yup, that same Professor Eitan Sheshinski, hated by investors and the target of a vicious, nameless campaign of demonization.
rue, the committee doubled the tax burden on gas investors, ended the gas bonanza on the stock market, changed the rules of the games retroactively and created a problematic precedent between the state and the business community. True, the committee – more accurately, the vast campaign against the committee led by the investors – caused enormous reputational damage to Yitzchak Tshuva and his partners, who turned overnight from heroes and saviours to evil robber barons and unparalleled public enemies. It’s all true. But alongside all this, the Committee enacted a strategic change in the balance of power between the state and the entrepreneur – and this change is the best thing to happen to Delek and Noble since the discovery of the gas itself.
Without Sheshinski, things would have turned out a lot worse for the entrepreneurs. Beforehand, let us remember, the state didn’t collect taxes on the use of natural resources – a situation which could never have lasted. The state had several options of how to proceed, and the path it took was the best available for Tshuva and his partners. On one hand, the state upped its stake in the gas profits to 60% and more, but on the other hand, it itself became the principal owner and partner in the gas reserves. According to this model, the state isn’t just a regular speculative shareholder in the gas, it’s a long-term strategic investor, ready to wait years to see its profits, once its partners invest in infrastructure and development.
Therefore, since the passing of the Sheshinski Law, the state’s guidelines have aligned with those of the investors. The Ministry of Finance Budget Department has forcefully blocked efforts to approve gas exports, and Eugene Kandel has fought against every move to delay the development of the gas reserves. It’s true that others haven’t fallen in line: David Gilo, for instance, decided he’s not willing to balance considerations beyond his limited remit – promoting competition. Gilo, however, is the minority, even within his own Antitrust Authority.
Therefore, anyone who declares (including from the Knesset podium) that the “state caved to the gas monopoly,” or that “government officials folded under corporate pressure,” has a crooked view of reality. The state didn’t cave to the monopoly. The state is the secret partner to the monopoly, the hidden owner of the gas. The state wants Tshuva and his partners to succeed not because it has become subservient to corporate interests, and not because it’s indifferent to monopolies or subsidizing the price to the consumer. The main priority of the government is to ensure it receives its expected tax revenues from the gas – USD 126 billion over the next 20 years. Currently, only Noble and its partners can bring this sum in, or so the state seems to be convinced. As such, Noble and Delek need to say one word to Sheshinski: thanks.
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Delek Drilling, Avner Report Higher Profit
May 19, 2015 | Globes (English)
By Hedy Cohen
Delek Group Ltd. (TASE: DLEKG) energy exploration and production units Avner Oil and Gas LP (TASE: AVNR.L) and Delek Drilling Limited Partnership (TASE: DEDR.L) have reported higher profits from the sale of natural gas from the Tamar field and lower financing costs, in the first quarter of 2015.
Delek Drilling reported revenue after royalty payments of $51.4 million, up 5% from $48.8 million in the corresponding quarter of 2014. Production costs were $5.3 million, down from $5.7 million in the corresponding quarter of 2014. The lower costs were from operations at Tamar and Yam Tethys including transport, conveyance, salaries, consultancy, maintenance and insurance.RELATED ARTICLESGov't considers increasing Israel's gas export quotaRegulators present Israel gas compromise to Delek, NobleAntitrust regulator pressed to accept gas compromise
Delek Drilling's financing costs shrank to $8.4 million in the first quarter from $15.5 million in the corresponding quarter. Net profit was $30.8 million, up from $18.8 million in the corresponding quarter of 2014.
Avner's results followed a similar pattern. Avner reported revenue after royalty payments of $49.8 million, up 5.5% from $47.2 million in the corresponding quarter of 2014. Net profit was $29.2 million, up from $17.6 million in the corresponding quarter of 2014.
In the first quarter of 2015, the Tamar partners sold 1.97 BCM of natural gas, up from 1.7 BCM in the corresponding quarter of 2014.
Delek Drilling and Avner said that the Israel Antitrust Authority would under no circumstances declare the companies a cartel before June 30.
Israeli Press
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