Delek Group Ltd. (TASE: DLEKG) claims that the interim report by the Inter-ministerial Committee for the Review of Government Policy on the Oil and Natural Gas Market - the Tzemach Committee after its chairman, Ministry of Energy and Water director general Shaul Tzemach - reduced Israel's natural gas reserves by one trillion cubic meters (TCM) for no reason. Delek claims that the government is systematically manipulating data - in this case, to influence the Tzemach Committee to restrict the potential for gas exports, while the Sheshinski Committee used the same baseline data to give a much larger estimate of Israel's potential gas reserves for the purpose of calculating the government's take.
Delek submitted its response to the Tzemach Committee's recommendation last Thursday, the hearing's deadline, along with 20 other groups, including leading oil and gas exploration companies, environmental groups, and a private individual.
The report is available in Hebrew at Committee for the Review of Government Policy on the Oil and Natural Gas Market in Israel.
A surprising respondent to the report is Italy's oil company Edison SpA (BIT: EDN), which last week joined Delek and other companies in bidding for offshore Cypriot gas exploration licenses.
In its response, Delek lambasted the Tzemach Committee's conclusion to restrict gas exports, in particular limited gas exports from the Leviathan discovery to less than half its reserves. Delek contends that the window of opportunity for gas exports is about to close, and that the recommendations will drive away foreign investors, which are already hesitant, from Israel's oil and gas exploration market.
In an interesting new argument, Delek claims in its response that Israel's potential gas reserves could be almost one TCM more than the figure stated by the Tzemach Committee.
As "Globes" was the first to report, the Tzemach Committee estimates Israel's potential gas reserves at 1,400 billion cubic meters (BCM), almost double the country's proven reserves of 750 BCM, found in the six offshore discoveries since 1999, beginning with Tamar and Leviathan.
Delek contends, however, that the Sheshinski Committee, which examined tax policy on the oil and gas industry in 2010, estimated Israel's gas reserves at 2,324 BCM 924 BCM more than the amount estimated by the Tzemach Committee. "A review of the two reports, indicate that both are based on the same survey published in March 2010," says Delek.
This is a report by the US Geological Survey (USGS), which estimated the potential gas reserves in the Levant Basin, which includes the exclusive economic zones of Israel, Lebanon, and Cyprus, at 122 trillion cubic feet (3,465 BCM).
Delek says that whereas the Sheshinski Committee estimated that "two-thirds of this figure is likely to be found in Israel's exclusive economic zone", the Tzemach Committee's interim report states, without any explanation or argument, that only 40% of the USGS estimate in within Israeli waters. "Why?" asked Delek. "We don’t know."
The Tzemach Committee - three of whose members also served on the Sheshinski Committee - is silent on this point. "With all due caution," says Delek, "the huge difference between the state's position in the Sheshinski Report and its position in the interim report by the [Tzemach] Committee… creates the impression that these are systemic assertions… When discussing the government's take from natural gas sales (the Sheshinski Report) the state wanted to increase by as much as possible the amount of supply in order to justify a high tax rate, whereas here, when examining the minimum amount of gas to kept for domestic needs, the committee wants to present as if the domestic supply is not large."
Published by Globes [online], Israel business news - www.globes-online.com - on May 16, 2012
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