The Norwegian report rates sanctity of contract in Israel worse than in Indonesia, Angola, and Mozambique.
In Israel, price controls in the natural gas market are a controversial point, with opponents warning that regulatory uncertainty in Israel is driving away investors. A report is now being published that supports their claims. Commissioned by the Norwegian government from the leading consultancy firm IHS CERA, the report puts Israel in 48th place in the world on its risk index for oil and gas activity, and 61st on its general attractiveness, without taking the Arab boycott into account.
The Norwegian government actually commissioned the report in order to examine the appeal of investment in its oil and gas sector through a comparison with other countries. Israel is one of the countries included in the comparison, and the results are not impressive. They are particularly poor given the successful drilling carried out already and the potential market. The report itself notes that Israel still has potential gas reserves amounting to 32 trillion cubic feet (TCF) and potential oil reserves totaling 3 billion barrels. Israel is rated in 15th place in potential.
The consultancy firm, which has been advising the Israeli Ministry of Energy for two years, and is therefore familiar with the local market, included in its comparison factors such as political and economic risk, regulation (to what degree it constitute a burden), the degree of corruption in a country and to what degree it honors agreements with oil and gas suppliers, to what degree it meets its obligations to suppliers, what the chances are of exporting oil and gas, etc. The weighing of these factors indicates, for example, that Israel is not honoring its oil and gas commitments and agreements. Sanctity of contract in Israel is rated worse than in Indonesia, Angola, Mozambique, and other developing countries. According to the report, only Nigeria is worse than Israel on this index.
The report also indicates that Israel constitutes a high risk for exporting gas. According to the consultant company, Israel will have more difficulty in exporting its excess gas than Brazil, Angola, and Mozambique. Nigeria is also worse than Israel on this index.
In the general risk, Israel is rated in 61st place. This index weighs elements such as political, economic, legal, taxation, operating and safety risks. According to the report, countries with a low rating are those in which business is conducted in an unstable environment, and risks can therefore come from various directions.
The report does not take the Arab boycott against Israel into account, and therefore does not assume that investment in Israel is even lower than the report found.
It is reasonable to assume that the report took into account the regulatory changes in Israel in recent years. In 2011, after the gas developers had invested hundreds of millions of dollars in the Tamar reservoir, and the Leviathan reservoir had already been discovered, the state changed the rules of the game by increasing taxes on the gas developers. Additional changes concerned the guarantees that the gas developers were obligated to deposit with the state, and a decrease in the proportion of gas they were allowed to export. Another change currently under discussion is state intervention in gas prices.
Published by Globes [online], Israel business news – www.globes-online.com