Journal of Energy Security: Israel’s Zero Gas Option: Take II

Last August I floated in this Journal the highly unlikely scenario that due to bureaucratic paralysis and inability to instill confidence among international oil and gas firms Israel might blow its chance to become a major player in the global natural gas landscape. This week the scenario took a major leap toward materialization when the Australian energy giant Woodside Petroleum which had previously agreed to buy a 30% stake in Israel's Leviathan gas field withdrew from the deal's signing ceremony at the last minute due to disagreements with the Israeli Tax Authority. What was likened to a bride escaping from her wedding prior to the "I do" moment, came as a shock to Israel’s energy sector. 

The $2.5 billion deal was the biggest in the sector's history, and the investment is considered key to the development of the Leviathan. Woodside demanded a high depletion allowance, tax deferrals and exemptions on its future investments in the project to the tune of hundreds of millions of dollars from the Israeli government. And while the Tax Authority went to great lengths to accommodate the Australians it was too little and too late. Woodside has not closed the door yet. 

In a statement to the Australian stock exchange it stated "Discussions continue with the parties and the Israeli government with a view to resolving the remaining issues and executing definitive agreements." I wouldn't bet that the gaps can be closed, at least not in the foreseeable future as the sides are still far apart on fundamental issues, and the political climate in Israel is not conducive to reducing the prospective tax take on so called energy tycoons. It is time to begin to think about the day after Woodside in case the Aussies decide after all to stay down under.  MORE