Noa is a fairly small natural gas reserve near Yam Tethys, owned by Delek Group Ltd. (TASE: DLEKG) and Noble Energy Inc. (NYSE: NBL). It has enough gas for one year's supply. Discovered in 2001, its owners have refused to develop the reserve for production on the grounds that the investment is not worthwhile, while the Ministry of National Infrastructures does not use its authority under that Petroleum Law (5712-1952) to compel the companies to do so.
Petroleum Supervisor Dr. Yaakov Mimran, who supposedly implements the Petroleum Law, does not insist that Noa's owners develop and produce gas from the reservoir, nor does he apply his legal authority to rule that the license owners are not in compliance with its terms. Such a ruling means taking away the license and giving it to someone else.
The opportunity created by the Egyptian uprising and the damage to East Mediterranean Gas Company's (EMG) pipeline suggests that gas from Noa could definitely be an immediate source to fill the hole in gas deliveries for a limited period, in addition to gas from Yam Tethys (also owned by Delek and Noble Energy), until gas begins to flow from Tamar.
It turns out, however, that the parties - the license holders and those who awarded the license - are exploiting the situation to demand that the Ministry of Finance carve out an exception for revenue and profits from Noa from the Sheshinski committee recommendations.
The main problem is that an exception for Noa would set a precedent for exempting Tamar, the main source of future revenue and profits, and this might just be the intention.
The Sheshinski committee recommendations are intended to create incentives and accelerate development of oil and gas exploration in Israel by applying transition directives that provide easements for gas producers before January 1, 2014. Noa could begin producing long before then, and benefit from these transition directives. Moreover, because of Noa's relatively low profit margin, it will be tax exempt, because of the progressive tax brackets in the Sheshinski recommendations. In other words, the state will receive little, if any tax revenues from Noa's profits.
The Ministry of National Infrastructures said in response, "Everything related to the Noa license involves political arrangements that have not yet been arranged."
Israel Electric Corporation (IEC) (TASE: ELEC.B22), as part of a policy to diversify energy sources, has a great opportunity to quickly obtain permits for its coal-fired or dual-fuel Ashkelon D Power Plant, overcoming strong opposition from local residents, health officials, and environmental organizations.
IEC loves coal-fired power plants, even when natural gas discoveries in Israel create self sufficiency for decades. IEC has 2,000 employees listed under "power plant construction". Construction of the gas-fired power plant needs only a few hundred employees, but construction of a coal-fired power plant will need them all. Construction of the gas-fired power plant renders hundreds of employees redundant, which will create labor problems for IEC's management.
The natural gas discoveries have created a previously unimaginable economic foundation for Israel. Tamar can begin gas deliveries within two years, and meet all of Israel's needs for many years. More exploration is underway. Until then, it will be possible to use coal, diesel, and heavy industrial oil-fired power plants, as well as gas-fired plants using gas from Yam Tethys and smaller reserves.
There are two conditions for this: Tamar must not be held hostage to soften the new tax recommendations, and the Ministry of National Infrastructures must apply the law to force the Tamar partners to work at full speed. If there really are financing problems due to the Sheshinki recommendations, the minister of finance must fulfill his promise to help - and fast.
Published by Globes [online], Israel business news - www.globes-online.com - on February 6, 2011
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